By Tracy Withers
July 14 (Bloomberg) -- New Zealand consumer-price increases probably accelerated in the second quarter, fanned by fuel and food costs, adding to signs the economy is facing stagflation as it slips into recession.
The consumer prices index rose 1.4 percent from the first quarter, according to the median estimate of 12 economists surveyed by Bloomberg News. Annual inflation was probably 3.8 percent, the fastest pace in two years. The report will be released tomorrow at 10:45 a.m. in Wellington.Central banks from Chile to Japan are grappling with slowing economic growth while surging fuel and food prices fan inflation. New Zealand retail sales fell by the most in four years in May, adding to signs the economy was probably in a recession in the first half of 2008, while inflation will likely reach an 18-year high by December, said economist Craig Ebert.
``We expect gross domestic product to go backward and inflation will go higher,'' said Ebert, senior markets economist at Bank of New Zealand Ltd. in Wellington. ``In a headline sense, there is no denying this is stagflation, although it's not an extreme example.''
The economy contracted 0.3 percent in the first quarter. Eight of 13 economists surveyed by Bloomberg expect it also shrank in the second quarter, putting the economy in its first recession since 1998.
Pricing Intentions
A net 23 percent of companies say sales will slow in the next three months, the most pessimistic outlook since 1990, suggesting the economy will also contract in the third quarter, according to a July 8 report from the New Zealand Institute of Economic Research.
Ebert expects inflation will accelerate to almost 5 percent this year, the highest since 1990, as fuel and food costs rise. A net 47 percent of firms surveyed by the New Zealand Institute plan to raise prices in the next three months.
Reserve Bank Governor Alan Bollard, who is required to keep annual inflation between 1 percent and 3 percent, has left the benchmark interest rate at a record-high 8.25 percent since July last year, betting the slowing economy will curb inflation.
The Bank of Japan will probably keep its overnight rate unchanged this week as high prices discourage spending and derail growth, according to all 39 economists surveyed by Bloomberg. Interest rates in Chile have tripled the past year even as economic growth slows.
Drought, Housing
Last month, Bollard said borrowing costs are likely to fall this year because annual inflation will slow to less than 3 percent within two years. Three of 13 economists surveyed by Bloomberg News expect he will cut the benchmark interest rate on July 24. Nine forecast a reduction in September and one a cut in October.
The chance of a quarter-point cut this month rose to 58 percent on July 11 from 32 percent a week earlier, according to an index calculated by Credit Suisse based on swaps prices.
Bollard ``will want to make monetary policy less restrictive, but he may wait until September,'' said Ebert.
Bollard is under pressure from companies and home-owners to cut interest rates as drought, international credit turmoil and a slump in the housing market weigh on consumer spending.
Hallenstein Glasson Holdings Ltd. last week said full-year profit will fall at least 28 percent as sales drop, the third New Zealand retailer to cut earnings forecasts in the past two weeks. In May, retail spending slumped 1.2 percent as car sales had their biggest slump since March 1997, Statistics New Zealand said in a report today.
House Prices
New Zealand's house prices posted their smallest annual gain in more than three years in June, Quotable Value New Zealand Ltd., the government valuation agency, said in a report today. A third report showed the nation's services industry contracted for a third month as falling business confidence damped demand.
Still, the central bank doesn't want to fan inflation pressures by cutting borrowing costs too early, said Doug Steel, senior economist at Westpac Banking Corp. in Wellington.
``Inflation expectations are already elevated and are likely to press higher,'' he said. ``The cumulative pressure built up in the economy will prevent an aggressive monetary easing despite a rather sharp softening in economic growth.''
Air New Zealand Ltd., the nation's biggest airline, raised fares by an average 10 percent between March and June, citing record-high jet fuel prices.
Electricity prices have increased as a drought depleted the levels of lakes and rivers that account for 60 percent of the nation's generation.
Bloomberg Survey
Bollard will focus on non-tradable inflation, a core measure of prices that are not influenced by currency fluctuations and fuel, said Bank of New Zealand's Ebert.
Non-tradable prices probably increased 0.9 percent from the first quarter, when they rose 1.1 percent, according to the median estimate of eight economists. Bollard is expecting a 1 percent gain.
Following is a table of economists' forecasts for the change in second-quarter consumer prices from the previous three months and from a year earlier, and changes in non-tradables prices from the first quarter.
Consumer Prices Non-Tradables
Qtr Year Qtr
--------------------------------------------------------------
Median 1.4% 3.8% 0.9%
High Forecast 1.6% 4.0% 1.0%
Low Forecast 1.2% 3.5% 0.8%
No. of replies 12 12 8
--------------------------------------------------------------
ANZ Bank 1.4% 3.8% 1.0%
ASB Bank 1.4% 3.8% 0.9%
Bank of New Zealand 1.4% 3.8% 1.0%
Barclays 1.1% 3.5% ---
Citibank 1.4% 3.8% ---
Deutsche Bank 1.4% 3.8% 0.8%
First N.Z. 1.5% 3.9% ---
Goldman Sachs JBWere 1.2% 3.6% 0.9%
ICAP 1.4% 3.9% ---
JP Morgan 1.4% 3.8% 0.9%
UBS 1.6% 4.0% 0.8%
Westpac Bank 1.6% 4.0% 1.0%
--------------------------------------------------------------
To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net.
Posts
No comments:
Post a Comment