Inflation's pressure is easing

Kia ora,

Welcome to Tuesday’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.

And today we lead with news we have some major set piece central bank meetings this week and there is a growing feeling they will each try to challenge investors' expectations of 2024 interest rate cuts.

But first, American consumer inflation expectations for the year ahead fell to 3.4% in November, the lowest since April 2021. That is down from 3.6% in the previous month, and aligns with a number of separate private consumer surveys that have picked up a disinflation trend in the US economy. (Disinflation is falling positive inflation, deflation is where prices are falling.)

It is not only inflation that is reducing, US Treasury bond yields are too. Today there were two major auctions. The three year Note was well supported with $121 bln offered for the $50 bln available. Investors won that with a median yield of 4.43% pa which was down from 4.65% at the previous equivalent auction a bit more than a month ago.

It was a similar story for their ten year bond. Today $94 bln was bid for $37 bln available, so again well supported. Today's median yield was 4.22% pa and that compares to the 4.44% at the prior equivalent auction 5 weeks ago when US$40 bln was available.

In Japan, the latest official sentiment survey for large businesses there has revealed fast rising optimism, their best in two years.

Locally, inflation pressures are easing too. The Infometrics/Foodstuffs grocery cost index monitoring reports prices rose +4.8% in November from a year ago, the first sub-5% annual increase since March 2022. There are some categories (bulk foods and meat) that are now well under +3%, although some others still around +6%. Recall for the three year period 2019 to 2022, grocery prices rose overall less than +2%, so the current levels remain unusually high even if they are moderating fast.

And we should note that the aluminium price has fallen to its lowest level since April 2021.

The UST 10yr yield is firmer on secondary markets at 4.27% and up +4 bps from yesterday at this time. You will note that is a premium to today's US Treasury auction (above). 

The price of gold will start today just on US$1982/oz and down -US$23/oz from this time yesterday.

Oil prices are down -50 USc from yesterday at just over US$71/bbl in the US. The international Brent price is now just over US$75.50/bbl.

The Kiwi dollar starts today at 61.2 USc and unchanged from yesterday. Against the Aussie we are up +10 bps at 93.3 AUc. Against the euro we are still at 56.9 euro cents. That all means our TWI-5 starts today just on 70.3, +10 bps higher than yesterday at this time.

The bitcoin price starts today at US$41,753 and down a sharpish -4.7% from this time yesterday. Volatility over the past 24 hours has been very high at +/- 4.3%.

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

You can 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.