Telecom separation

So Telecom is to be operationally separated. To prevent the issue of double marginalization, the commerce commission is going to regulate the price set in the access market.

Do you think this is the correct way to regulate the access network.

While I believe it will lead to more competition in the wholesale and retail markets, I can understand the argument that states that this type of regulation will lead to lower investment (as firms invest until MB=MC, if the marginal cost of investment increases in the amount of investment, then lowering the price will lower the marginal benefit, and lead to a less investment.) I hear the government has a plan to improve Telecoms incentive to invest, does anyone know what it is? If so, do you think it will work?

The Warehouse merger

So the commerce commision has released documentation on their refusal to let Foodstuffs or Progressive buy the Warehouse. They believe that the merger would not influence the general merchandise or wholesale foods market, but would negatively influence supermarket competition.

Do you think that a merger would negatively impact supermarket competition, and if so how?

It is important to note that one of the significant factors behind the increase in the value of retail sales in the past few months has been rising supermarket prices. But is this the result of a lack of competition, or a result of the success of the Warehouse grocery chain (given that the Warehouse sells their grocery products at a higher price).

The week in numbers

  • The NZ$ pushed through US$0.79, but couldn’t quite reach the US$0.80 mark
  • CPI inflation came in at 1.0% for the June quarter, taking annual inflation to 2.0%.
  • 11% annual growth in short-term departures from New Zealand in June. This took departures to a record 208,309
  • 4% annual growth in short-term arrivals to New Zealand indicate a lack of price responsiveness from tourists. However, they are spending a lot less once they get here.
  • There was a net migrant inflow of 590 (seasonally adjusted) in June. The year-ended net migrant inflow continued to fall, and is now at 10,078
  • Electronic Card payments were up 7.2% on a year earlier in June. This implies that retail sales will maintain the gains experienced in recent months.

The recent strength in CPI, QVNZ house price and retail sales figures will make the RBNZ feel that it has to lift rates again. It is important to note that REINZ house sales and price figures looked relatively weak.

While the market is currently pricing in a 60% chance of a rate rise in July, I think they should hold. The QES and HLFS are due out between now and September, and will give us a strong indication of whether the labour market is beginning to ease. Furthermore, two more months of house sales data could be invaluable, with the housing market at a possible tipping point.