Slowing Down? This week we learnt that during the March quarter core retail spending (excluding fuel and vehicles) rose by 0.6% in seasonally adjusted volume terms. This is a slowdown from unusually strong growth of 1.8% in the December quarter but it is too early to conclude that a new easing trend is necessarily in place beyond the pullback from the 2015-16 surge. Much of the slowdown will simply be a payback from the strong December quarter and if we average growth for the six month period the outcome of 1.2% a quarter is consistent with the average for the past year and a half. If we look at the best indicator of attitudes which consumers have toward how things are and where they are going we see that spending on store types selling mainly durable goods rose by 2.2% in the quarter. This was actually an acceleration from 1.5% growth during the December quarter. This again implies that treating the weak March quarter result as the start of an easing trend would not necessarily be correct. But as the graph above clearly shows, an earlier boom in spending growth has eased off slightly. Looking ahead we see an environment which will provide continuing support for growth in consumer spending. Demand for employees is very high so we would expect people to feel a high level of job security. Interest rates look set to remain low for a continuing very long time. Population growth remains strong (see below), and house prices continue to rise in most parts of the country though at slowing paces. House construction remains strong and that is good for sales of home furnishings etc. Yet there are reasons for retailers erring on the cautious side. Petrol prices have risen quite a bit recently and could go a tad higher. That saps spending available for other things. Of probably greater relevance for retailers however is the ongoing rise in competition from online sources, and the increased willingness and ease with which consumers can search for alternatives online. On top of that social media’s omnipresence means that bad stories about a retailer or their product can spread very easily. And any stories of sales weakness may build expectations of failure or deep discounting to such a level that people sit still simply waiting for such discounting to occur. Retailers also need to be aware of the increasing demand from consumers for environmentally friendly goods with a minimum of packaging. Plus staffing is becoming an increasingly problematic issue for many retailers. We more frequently see job vacancy signs in shop windows these days, and the rise in minimum wages will affect some. For others the issue might be the long-overdue crackdown on staff exploitation by some bad operators. This may be hitting others who following an inspection might lose staff who’s work visas have been discovered to be out of date. We also learnt this week that the population boost from net migration flows continues to ease off, largely because of a lift in the number of foreigners leaving the country. In April the net migration inflow amounted to 2,460 people which was down from 3,406 a year ago. The annual net migration gain now stands at 67,040 from a peak of 72,404 nine months ago. The speed of turnaround is so far fairly slow at an annual pace of near 7,000 but a small acceleration in the decline could be underway. Over the past three months the annualised net migration gain has fallen to 61,000 from 70,000 three months back. But we have to be careful about over-extrapolating monthly and even three monthly changes as things can move around quite a bit. This graph of monthly seasonally adjusted net inflows probably best shows the turnaround. Fundamentally speaking, a key driver for high net migration inflows of strong labour demand in New Zealand remains and is expected to persist for some years. This is highly relevant not just in terms of people coming in on work visas, but Aussies coming in at will and those of us already here choosing not to leave. The annual flow against Australia is interesting. It peaked at a record net loss of 40,000 people in 2012 but now stands at only a small loss of 162 in the past year. This is down from a gain of almost 2,000 in NZ’s favour late in 2016. The turnaround is minor but is likely to go further as jobs growth has been quite strong in Australia for the past year and a half with full-time employment in particular showing a turnaround from many weak years post-GFC. Housing I’ve been making number of presentations to people interested in the residential property market recently with more coming up. The questions people have are invariably centred around very specific things which have capacity to have some influence on the market. They ask about the changing brightline test, or the planned ban on foreign buying, or availability of bank finance. They are right at the coalface in the sector and their questions are quite specific. Rightly so. But that is not where I live my job. As an economist my job in every forum is to take people briefly away from their immediate concerns and try and show them the big long-term picture. Sometimes I say to audiences that I will speak about the things over which they have no influence but which will influence their outcomes. In the housing sector that means I am still writing and speaking about the same things I have been focussing on for a very long time. Consider this following collection of points. • “New Zealand has a shortage of dwellings and not an over-supply like the US, Ireland, Spain etc. That means the extent to which house prices would fall this cycle was always going to be limited. • Construction is at its weakest levels since 1965 near 14,000 per annum whereas 25,000 has been the average for the past decade. • Population growth is accelerating courtesy of rising net immigration (fewer people leaving so the mix is different from what we thought last year). • Interest rates are at very low levels – 40 year lows for floating mortgage rates. • The ability of housing construction to respond this cycle will be limited by the collapse of the finance company sector and its generous loans of money to property developers, plus tighter lending criteria by banks. • Investors have seen their equity investments and many others torn apart. The relative attractiveness therefore of housing from a psychological point of view has increased.” I wrote those comments in the August 20 2009 issue of the Weekly Overview. Here are some more detailed comments from the September 3 2009 issue. • “Average new house sizes are far larger than before so each “unit” of house involves 1.x units of older houses. With nothing else changing (ceteris paribus) average construction prices will be 1.x times higher. • There are more double income families now than in earlier years so price/income measures using average individual income measures are less relevant. One can easily adjust for this using household incomes however. • Average construction costs per meter are now higher than they used to be due to things such as tighter regulation of materials and construction personnel, compliance costs, insulation requirements, inspections, quarry availability and travelling distance for materials… • What we expect in a house is more than before – inside toilet(s), computer wiring, patios, … • Section sizes are smaller but land availability is worse than in the past so prices are higher. • Councils have not only moved to make section developers pay the full cost of services that will run to their area, but extras as well as a form of subsidy for existing ratepayers. • Availability of credit to individual buyers is far greater than in the old days so the pool of people who can consider making a purchase is greater than before, and if people choose they can access credit at an earlier age than before. • People’s awareness of the need to save for retirement has soared in the past 15 or so years so there is a constant nagging feeling that one needs to invest in something. Housing appears to be the default investment for Kiwis. • One could be wrong, but it appears harder in some locations to develop new subdivisions and therefore expand city boundaries (Auckland) than in the past. “ You can find these two old publications here: Page 7 in the former. https://www.mortgagerates.co.nz/files/WOAug20.pdf Page 10 in the latter. https://www.mortgagerates.co.nz/files/WOSept3.pdf And for your guide, here is the url containing our November 1 2012 listing of 19 reasons why Auckland house prices would keep rising. http://tonyalexander.co.nz/wpcontent/uploads/2013/02/WONovember-1.pdf Have any of the factors discussed above changed enough to alter the new housing fundamental of higher prices? From the first set we can note higher consents at 31,500 but population growth well exceeding anything we envisioned back then as net immigration flows have boomed. From the second list we can note that credit availability has tightened up for house buyers through LVRs and changes in bank self-imposed rules. But development finance has also tightened up. On the last point above, development of new subdivisions still looks like a nightmare. It is into the context of the long-term fundamentals like rapid population growth (see the net immigration graph trend line on page 3 above), hiking construction costs, desire/need to invest for long-term gain (that is the bit some people fail to grasp as they speak as if every investor were a speculator), and family changes that we need to place new developments. Some investors will be discouraged by the coming anti-investor legislation. But that won’t change the above fundamentals. Once the mix of investors has adjusted the availability of housing stock will worsen as young couples move out of family homes to displace tenants, rents will be higher because of higher costs, and the market will move back up again. Timing for Auckland? Probably within the next 18 months. Relevance for the rest of the country? Underpinning of recent price rises with upside potential slightly further down the track, but lost in the wash for the next 18 months as the lagged booms following Auckland’s earlier surge naturally end. Are You Seeing Something We Are Not? If so, email me at tony.alexander@bnz.co.nz with Housing Comment in the Subject line and let me know. If I Were A Borrower What Would I Do? Writing in this section has been a very boring exercise for some years and remains so even though we are seeing rises in US long-term interest rates. In theory such rises should place upward pressure on medium to long-term fixed interest rates in New Zealand. In practice we are yet to see that and it might take another 0.5% gain in the benchmark US ten year Treasury bond yield to cause a noticeable movement in average rates here. Were I still borrowing at the moment my inclination would be to fix at about the two year period with some spreading of forecasting uncertainty by locking some debt in for one year and a tad also for three years with some also floating to allow for cost-free early repayments should such become possible. Download document pdf 264kb

The Weekly Overview is written by Tony Alexander, Chief Economist at the Bank of New Zealand. The views expressed are my own and do not purport to represent the views of the BNZ. This edition has been solely moderated by Tony Alexander. To receive the Weekly Overview each Thursday night please sign up at www.tonyalexander.co.nz

Last 2017 Issue This will be the last issue of the Weekly Overview for 2017. Merry Christmas everyone and enjoy the early summer fruit appearing as a result of the sudden switch in weather conditions around the country – from very wet to hot and dry. Lets finish the year with a run-through of some of the recent data starting with one set I suggest we all ignore for the moment – the ANZ Business Outlook Survey. Released last week it showed a decline in business sentiment about where the economy will be in a year’s time to a net 39% pessimistic in early-November from 0% just ahead of the lateSeptember general election and 18% in August. Employment intentions have dropped to a net 3% negative from 17% positive in August. Investment intentions have fallen to +4% from +23%. Should we be forecasting recession on the basis that these readings and others are the worst by and large since the Global Financial Crisis? No. Business surveys have a downward bias in New Zealand when Labour are in power. Add in the uncertainties of having NZ First involved, the Greens in there for the first time ever, the inexperienced nature of the Cabinet and the gaffs made so far and a lot of uncertainty exists. But the new government is not like the one which came to power in November 1999 intent on slamming employers and those with above average income. The drivers for our economy are strong, world forecasts have just been lifted, monetary policy is not being tightened, and consumer confidence is above average. This link will take you to our August 31 Weekly Overview where we discussed the chances of a repeat of the 2000 winter of discontent. http://tonyalexander.co.nz/wp-content/uploads/2017/08/WO-August-31-2017.pdf So for the moment there is no real point in drawing conclusions from this business survey. It would be best to wait for it to settle down – remembering though that it will have a downward bias for the entirety of the time Labour are in power. Speaking of good growth drivers, we have just seen the country’s terms of trade hit a record high. The terms of trade measure the size of a basket of imports one can buy with an unchanging basket of exports. The index has just gone above its June quarter 1973 high. Surely that is a sign that everything will be great. After all, things did go so swimmingly well from the second half of 1973 – not. The slow grind upward continues in the house building sector with the nationwide number of consents issued in the year to October coming in at 30,866 from 30,892 in September and 30,225 a year ago. Over this one year period Auckland consents have risen slightly to 10,437 from 9,947 which is fairly mediocre considering the well known and growing shortage. In Canterbury numbers have fallen 16% from 6,168 to 5,156. This means in the rest of the country numbers have risen 8% from 14,110 to 15,273. The Auckland growth has accelerated a tad recently, Canterbury’s decline has slowed, and the rest of the country has stopped growing – perhaps highlighting the key point we have been making for the past year or so. The regions lag Auckland in prices and construction. The construction response however has been very fast. That means it will end rapidly as well, assisted by the realisation dawning on many people that Auckland’s young and old are not leaving the big smoke for the “lifestyle” people in the regions think surely everyone values over everything else. The media are getting quite excited about data showing prices edging down slightly in Auckland. But watch for some of the regions bereft of decent population growth. It is from those places that more interesting negative headlines may emanate over the coming year. Whereas dwelling consents in Auckland look like bobbing along for the coming year with an upward bias versus downward elsewhere, net migration numbers look like bobbing along with a downward drift. In the year to October the net migration gain came in at 70,700 from 71,000 in September and a peak of 72,400 in July. A year ago the number was 70,300. The turnaround so far is very slow. History tells us we can sometimes pick the direction of drift for the numbers, but picking speed of decline or increase and where the peaks and troughs will be is a very hit and miss game. Back late in 2012 I was quite confident that the net outflow of -4,000 was turning around and would head toward maybe a 35,000 net gain. That was well off the peak of 72,000 recently but the analysis in terms of picking further price pressure in Auckland was correct. This time I personally don’t think any of us really has a clue what the net gain will be in three year’s time. On the downside one might cite the improving labour market in Australia, foreign students in NZ completing studies, and government plans to slash gross migrant inflows by up to 30,000. But on the upside the NZ labour market remains very short of people, and the government has notably not repeated its commitment to slashing migrant inflows – perhaps in the face of feedback that some industries would be very severely impacted. Net migration inflows will likely continue for quite a few more years and remain supportive of growth in the economy, housing markets etc. The monthly migration data release from Statistics NZ also tells us what is happening with visitor flows. In the year to October the number of people visiting New Zealand was ahead by almost 8% from a year earlier. One year ago this growth rate was 12%, two years ago 9%, three years ago 5%. Growth has been strong for quite some time now and at 3.7 million the number of people visiting our country is double what it was in 2001. In the three months to October visitor numbers were 4.2% ahead of a year ago and annualised growth in seasonally adjusted numbers these past three months was actually a fall of 6%. So numbers have pulled back recently but feedback from the sector indicates that this is not expected to continue. The key problem for the tourism sector as it looks at forecasts of the number of Chinese visiting for instance doubling in the next few years from 400,000 is that accommodation is in short supply and staff availability poor. The sector is undoubtedly working the phones with policy advisors and new government MPs pointing out the need for more, not fewer, working visas. Same for the farming sector. Same for aged care facility operators. Same for the construction sector, forestry tree planting, water deliverers etc. At least in the banking business staff don’t appear to be in short supply – in fact the tone is more one of redundancies picking up driven partly by implementation of new technologies and declining numbers of people using branches, cheques, cash and personal discussions. There are some negatives for our economy in play. The country is drying out like a bun in the back window and this will send a wave of caution through the agricultural sector. This includes farmers dependent upon irrigation facing restrictions on water access just like people in cities and towns are starting to face. The Southern Oscillation Index has entered into a small La Nina pattern but truth be told there has been no big sustained movement in the SOI for the past year. Some discussion on the effects of La Nina and El Nino can be found here. https://www.niwa.co.nz/climate/information-andresources/elnino/elnino-impacts-on-newzealand International oil prices have also risen recently and with help from a lower NZ dollar pushed petrol prices higher just in time for summer driving – something about which you might want to think twice given the still rapidly rising number of mindless tourists in the country hiring rental cars and campervans with no idea how to drive. Hitting the road these days is not the same experience as a couple of decades back and it could easily cost you your life. Bring on compulsory driverless cars for all visitors. Kiwi households have increased their dissaving rate – to -2.8% in the year to March 2017 from – 1.3% a year before and a string of tiny positives from 2010 to 2014. This means in an environment where banks have to try as best as possible to fund domestic lending domestically, credit availability will remain marginally on the tight side of normal going forward. But lending growth has slowed over the past year, most notably for investment property. So some of the worse case scenarios for credit availability doing the rounds ahead of mid-2017 are no longer on the table. If I Were A Borrower What Would I Do? The key fundamental underlying interest rate forecasts and their appalling failure rate since 2009 (2007 if you count not picking the GFC) has been the absence of a surge in wages in response to fast jobs growth, and technology limiting the ability of retailers to raise their selling prices. This comment applies not just to New Zealand but most other countries as well. The big question then is when will inflation rise enough to promote a general rise in the level of interest rates. The answer is that we do not have any post-GFC models or relationships which give any reliable insight into when this will happen. That is probably a harsh message to hear for those seeking to structure their mortgage to minimise cost over the next few years and those trying to maximise their term deposit returns. But its a simple fact. No-one can stand up and say they have a good interest rate forecasting record these past ten years. We are all useless. So what does one do in this circumstance? Spread your risk. Take a range of fixed terms as a borrower and as an investor perhaps do the same. If you are an investor and find that the structural decline in interest rates has left you with insufficient income in retirement then be very careful about taking on riskier assets in order to boost your yield. Such assets are available but how will you be left if they flop or fail to pay back your capital in the timeframe you envisaged? If an interest rate guess is what you want then here is the popular one at the moment. The Reserve Bank project that they will not start raising the official cash rate until the end of 2019 but in the markets the view is that a rate rise will come probably in the second half of next year. Of course if the drought worsens and persist then the RB might start thinking about an interest rate cut! If I were borrowing here at the end of 2017 I’d probably lock most of my mortgage in for two years with perhaps a little bit at one and three years. Enjoy summer. Download document pdf 345kb

The Weekly Overview is written by Tony Alexander, Chief Economist at the Bank of New Zealand. The views expressed are my own and do not purport to represent the views of the BNZ. This edition has been solely moderated by Tony Alexander. To receive the Weekly Overview each Thursday night please sign up at www.tonyalexander.co.nz

[caption id="attachment_11363" align="alignright" width="150"] Tony Alexander, BNZ chief economist.[/caption] LVR rules have been eased slightly. But it is extremely unlikely that a new housing surge will occur – and if the Reserve Bank thought that such a surge would occur they would not have made the small changes. No New Housing Surge The Reserve Bank surprised most people yesterday with its move to ease up the loan to value ratio (LVR) credit controls introduced in October 2013 then strengthened in October 2015 and July last year. From January 1 banks will be able to have up to 15% of mortgages with deposits less than 20% of the house purchase price for owner occupiers. Currently that is 10%. For investors the minimum deposit (with 5% of loans exempted) falls to 35% from 40%. Will these changes cause a new surge in the housing market? Clearly the Reserve Bank does not think so else they would not do it, and we also think a fresh wave of demand hitting the market and pushing prices newly skyward is unlikely. The fundamentals still support prices rising – but not at an accelerating pace. And the bulk of the repricing of the country’s housing stock to reflect changes in long-term fundamentals has probably already happened. These long term fundamentals include things such as two incomes chasing a house instead of one per household up to the 1980s. Structurally lower interest rates courtesy of structurally lower inflation. This lowers the biggest cost of purchasing a house – the debt servicing burden. The reduction in this burden has been factored into the prices people are willing to bid. There has been a structural lift in the depth and range of groups wanting to be investment property owners – foreigners, young people, savers, even Baby Boomers bemoaning low interest rates now offered for bank term deposits. New houses are structurally very different from old ones with regard to levels of inspection and certification, energy efficiency, earthquake preparedness etc. Cities also have less land available near main centres of employment so land prices have structurally lifted. And so on. Most notably however with regard to reasons why house prices won’t surge anew is the absence now of FOMO. When prices rise firmly people feel a visceral need to jump into the market to avoid missing out on future gains which might come. This is happening with Bitcoins. Since the second half of last year FOMO has plummeted with regard to Auckland and it is on the way out in the regions. What will happen if the housing market remains relatively subdued for the first half of next year? Probably in that case the Reserve Bank will experiment with another easing in LVRs, perhaps taking the minimum investor deposit from 35% to 30%. The key point to note here is that the Reserve Bank is trying to learn how effective LVR changes are. They have learnt that a 40% requirement for investors is very effective. 30% previously for Auckland was not. But back then FOMO was strong. In the absence of FOMO 30% effective from perhaps the end of May next year might still not elicit a fresh investor surge – especially as banks have tightened lending criteria anyway in an environment where low interest rates are making it difficult to raise deposits domestically and raising extra funds offshore is frowned upon by the regulatory agencies and the likes of the IMF. If I Were A Borrower What Would I Do? Earlier on today I gave a talk to BNZ Retirees at their annual Christmas function. While there was interest in the political scene and some of the long-term trends, the main thing people wanted to know was when term deposit rates would be going back up. I did not have a good message. Almost all forecasts of sustained rises in interest rates in all countries have been wrong since 2009, apart from the United States for the past year. This reflects the structural decline in inflation caused partly by the absence of an acceleration in wages growth in response to fast jobs growth as used to occur before the GFC. Maybe one day wages growth will accelerate. But seeing as all forecasts that it would have so far been wrong it seems best just to wait until it does happen – if it does – then assess the inflation and interest rate impacts. Download document pdf 233kb

The Weekly Overview is written by Tony Alexander, Chief Economist at the Bank of New Zealand. The views expressed are my own and do not purport to represent the views of the BNZ. This edition has been solely moderated by Tony Alexander. To receive the Weekly Overview each Thursday night please sign up at www.tonyalexander.co.nz

This week’s Overview merely traverses a few of the points discussed at functions around the country then notes that even if the Reserve Bank soon eases LVRs, this won’t spark a new upward leg in the house price cycle. Download document pdf 240kb On The Road I’ve had a busy week rising at all sorts of early hours in order to travel and deliver talks in Rotorua, Taupo, Auckland and Christchurch with more to come tomorrow. Often I don’t get time to have a decent casual chat with people at every function but can get a feel for what people are thinking about from the questions they ask during and at the end of a presentation. In that regard these are the sort of things people are seeking views on. What are the main risks? People generally buy into the scenario pitched by all of us economists that there is some good underpinning to growth in the NZ economy for the next few years. But they wonder what could go wrong. So do we. So do the likes of the IMF and OECD who post-GFC seem to devote more of their outlook summaries to noting things which could go wrong. For NZ the main risk is an offshore disturbance, most notably something involving the China Seas. Brexit? Not really relevant to our immediate economic outlook. European banks? Nope. Trump? No-one has the foggiest. What does the next 30 years hold? This type of question is unusual but we economists love them because no matter what actually happens in 30 years we will be well off doing something else. I like to point out the generally upward trend in NZ’s terms of trade which is supportive of the NZD drifting up, the repricing of the housing stock which may be largely completed but which will not unwind. Also I like to discuss the trend change upward in New Zealand’s net migration flows, plus the growing proportion of the population living and to live in our major cities, particularly Auckland with the hangers-on of Hamilton and Tauranga plus some bits and bobs in between. What can the government realistically do to get more people to live in the regions? No-one ever asks this in the cities, but it crops up in the smaller locations. There seems to be a view that somehow the government can strongly influence where people will live. They can’t – especially in NZ. We are a disloyal bunch who will leave the country at the drop of a hat if things are not going the way we like. Usually we go to Australia. The idea that we will up sticks in Auckland, Wellington or Christchurch and relocate to the regions is always embraced by folk in the regions but it is not a realistic expectation for more than a small number of people – who frankly may enjoy better lives than those of us who cannot break away from a focus on maximum wealth growth over extended years through owning big city property. Or more accurately, our FOMO drives us to stay in the cities because everyone has or has heard stories of people who sold up, shifted out, but now bemoan their inability to ever shift back to the city because they missed out on big house price rises. Only one person asked about the sharemarket but that is not unusual. We economists generally steer away from talking about it and of course have to be careful not to sound like we might be giving advice – which is a great excuse to say nothing at all. There does appear however to be some underlying concern about the future of the NZ market which has been spurred by the exit of Xero. But their move is consistent with the longterm trend for the NZ exchange – challenged listing numbers and more of a nursery function than true component of the global capital market. One general theme which has crept into questions at presentations in recent months has been around issues of social equity, homelessness, the health system etc. It’s like people generally accept that the economy is okay, but what about the other stuff? This tone of people’s thinking and concerns at the edges helps explain the comfort with the new government, the hopes people have for it, and the feeling that had Labour not ended up on top this time they certainly would have done in 2020. What is notable with regard to the questions is what is not asked. No-one seems truly interested in where the Kiwi dollar is going. Exporters seem comfortable with current levels. Housing The REINZ released their monthly housing numbers this week. Meh. As pointed out here many times in recent months, the NZ housing cycle has finished its exciting upward bit in Auckland and the rest of the country will join in over the coming year. Monthly data from a variety of sources will get people excited. But in the absence of either a drastic change in net migration flows, sharp sustained change in interest rates, radical shift in the relative strengths of the NZ and Australian labour markets, or sudden big change in Reserve Bank rules nothing truly interesting is likely to happen for some time. Having said that, the Reserve Bank will be making an announcement some time soon regarding their current view on LVRs. There is an increasing chance that they will ease up on the rules because they have been surprised at how quickly the housing market has pulled back. But before some people get excited and start thinking that if they cut the 40% investor deposit requirement to 30% that this will spark a new lift in house prices from an investor surge – think again. First, the RB do not want a new surge. All they ever search for is the sweetspot where their rules (or OCR) have the effectiveness they want. The 40% made effective from the third week of July last year hit that sweetspot at the time but perhaps a bit too much so now. So if and when they reduce the proportion it will simply be to find the new spot where things become stable. Second, banks have tightened up their lending rules this past year over and above what is required by the Reserve Bank. It is very unlikely in an environment of tightened credit availability that there will be an easing in those new rules to match any LVR easing and drive a new rash of lending to investors. Third, FOMO on the upside has gone for this cycle. People do not feel that they must buy any old piece of ex-hospital radioactive land to profit from soaring property prices. And reinforcing that, foreign buyers are to be banned at long last. That can’t help but inject a note of caution into investors generally. If I Were A Borrower What Would I Do? There have been some small reductions in two and three year fixed rates offered by some lenders this past week. Our three year rate has been cut from 5.09% to 4.99%. Our two year rate is 4.69%. Am I prepared to shift what I personally would do if borrowing anew currently away from even splits between 1, 2 and 3 years and a tad floating to more three year fixed? Only a little bit. There is still nothing truly jumping out which says to us that global or NZ inflation is lifting. Sure, wags growth in NZ is set to accelerate because of the planned increases in the minimum wage rate and extra tightening of the labour market to be caused by immigration restrictions, hiring of tree planters one day, and some young people of directionless nature x%#$ing a year away at varsity for free. But can one truly believe that the pre-GFC relationship between jobs growth and wages is reestablishing itself? Every assumption that this has been happening since 2009 has been wrong in every country. I’ll believe it when I see it. On top of that, even if wages growth lifts, businesses outside of sectors such as building materials, local and central government, power companies, petrol companies, and entertainment (including TV) will struggle to get price rises past us consumers. Any lift in the pace of wages growth will more likely generate a reassignment of labour within the economy (which is a polite way of saying some businesses close down) rather than a good old wage/price spiral. The Weekly Overview is written by Tony Alexander, Chief Economist at the Bank of New Zealand. The views expressed are my own and do not purport to represent the views of the BNZ. This edition has been solely moderated by Tony Alexander. To receive the Weekly Overview each Thursday night please sign up at www.tonyalexander.co.nz.