Inventory Levels are LOW

Shortages in Almost Every Region

Inventory levels are very low in almost all regions at present. Only Wellington in February has more inventory than my magical 2.5%, although Nelson has exactly 2.5%.

CPI is a key interest point in the Media so I thought I would check out how it’s really running, since they just post the comments from Stats Department. CPI has fallen well below the RBNZ requirement of 2-3%, now at 2% if you annualise the December quarter. My belief is the more important Stats Dept Household Living-costs Price Index shows a different story.

Inventory

All regions and especially the major cities excluding Wellington are now short of listings, suggesting that supply has dropped below demand.

Rents/HH Incomes

That inventory is low should show in rents/incomes for all regions except Wellington, and it does. The chart below has been extended back to 2016 to show the post-earthquake rebuild impacts in Christchurch.

Wellington is returning to normal very quickly because major building projects ceased early last year.

This will not be enough for current Migration, sitting at 100,000 people pa or say 30,000 homes pa, we are going to get very short very quickly.

CPI

I have read a lot about our CPI getting down to 4.7% after a month of just 0.5%. That seems a little odd to me when we are targetting 2-3% inflation. I always mistrust CPI figures since they were manipulated by Muldoon in the 70’s, I still wonder how much manipulation politicians can achieve. So I looked closer at the data, looking deeper at contributors does my head in so instead I checked seasonality, it appears to be a thing on first glance.

Seasonality

Yes CPI is very seasonal, fruit and Veges are exactly that, seasonal, so it is no surprise that the median rate of growth from 2016 to 2020 prior to the pandemic shows higher levels in Q3 than other quarters. The last 3 years were influenced by interest rate changes and monetary tightening, BUT Q4 in 2023 returned to the seasonal average - exactly. Hence the changes in CPI are back to what they were prior to the pandemic, ie inflation has returned to normal.

HH Living-Costs Price Index

OK so if CPI is normal, what about other stats from Stats Dept. They also publish an inflation set of data called the Household Living-costs Price Index. Primarily intended to show the impact of inflation on Quintiles and various social groups, but also provides the impact on everyone (ALL). I believe this data is more reliable and less likely to be fiddled with by politicians. From Stats “Household living-costs price indexes (HLPIs) provide insights into the inflation experienced by 13 different household groups: beneficiaries, Māori, income quintiles (five groups), expenditure quintiles (five groups), and superannuitants. We publish an all-households HLPI for comparison.”

A direct comparison is below where;

1. CPI is on a clear downward path from Q3 2021 peak to Q4 2023 - with some variation, but now less than 0.5% (times 4 is under 2%)

2. HHLC (We publish an all-households HLPI for comparison) remains sticky above the CPI though and is not reliably trending down yet. It may be that a trend is developing Q3 2022 to Q4 2023, but the best result, 1.15% in Q4, by 4 times is 4.6%, ie well above the RBNZ target.

Expect the RBNZ to apply more delay to interest rate reductions, even a potential increase.

Inventory

I updated this morning all inventory stats here