How fast is inflation slowing?

Kia ora,

Welcome to Wednesday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.

I'm David Chaston and this is the international edition from Interest.co.nz.

Today we lead with news it will be all about CPI inflation today.

First, Stats NZ will release our December inflation figure at 10:45am (markets expect 7.1%). Then at 1:30 pm NZT the Aussies will release theirs (markets expect 7.5%). Misses from these expectations could well move financial markets.

Internationally last week, American retail sales grew their slowest on a year-on-year basis for same-store trading, and that wasn't enough to keep pace with inflation and was the weakest result since early 2019 (excluding the pandemic twists).

The Richmond Fed factory survey wasn't flash either and reported some deterioration in business conditions in January. New order levels and order backlogs were notably weak. Price pressures are still high even if they are falling away quite quickly now.

More generally, activity in both service and manufacturing sectors fell at a slower pace in the US in January according to the internationally benchmarked Markit PMIs for both their factory and services sectors. These are out on a 'flash' basis for this month.

Overall, companies are shedding temporary jobs faster now, in what can be an early sign of a labour market contraction.

In Japan, the small steps are going the other way. Japan's factories contracted slightly slower in January, and their services sector expanded slightly faster to a good moderate pace.

In Europe, the start of 2023 saw business activity rise marginally, according to their flash PMI data, showing a tentative return to growth after six successive months of decline.

Backing that up, the German GfK consumer sentiment survey improved yet again (that is, got less negative). The latest reading was the highest since August 2022, pointing to the fourth straight month of improvement in consumer sentiment.

The New Zealand service sector might only be expanding modestly, but at least it is still expanding. The Australian services sector is contracting. The best they can say is that it contracted less in January than in December. And the Aussie factory PMI has dipped slightly from a tiny expansion in December to a small contraction in January.

The NAB business sentiment report in Australia 'improved' in a very marginal way in December from a small negative in November. This was disappointing because it was expected to shift into positive territory. But it didn't. NAB is claiming inflation has now peaked in Australia.

But Gulf airline Emirates said travel demand is growing faster than expected and is reintroducing pre-pandemic service levels to Sydney and Melbourne and restarting services to Christchurch via Sydney. Services to Auckland had been restored earlier.

The UST 10yr yield starts today at 3.48%, and back down -5 bps from this time yesterday. 

The price of gold will open today at US$1931/oz and up +US$8 from this time yesterday.

And oil prices start today down -US$2, at just over US$80/bbl in the US while the international Brent price is down to just over US$86.50/bbl.

The Kiwi dollar has firmed slightly overnight, now at 65 USc. But that is the highest of 2023 and a +2.4% appreciation. Against the Australian dollar we start today little-changed at 92.3 AUc. Against the euro we are firmish at 59.8 euro cents. That all means our TWI-5 starts today at 71.9, and firm from yesterday but up only +0.7% for the year.

The bitcoin price is marginally lower, now at US$22,867 and down a mere -0.2% from this time yesterday. Volatility over the past 24 hours has remained modest at +/- 1.1%.

You can find links to the articles mentioned today in our show notes.

And get more news affecting the economy in New Zealand from interest.co.nz.

Kia ora. I'm David Chaston and we will do this again tomorrow.