With the import side holding up more strongly than exports for now, the Reserve Bank is unlikely to respond with lower interest rates in the near term.
Since the Reserve Bank of Australia raised rates in March, the housing market has just been going sideways. Rates are on hold until the third quarter of this year.
For the Reserve Bank, this is likely to significantly dampen any thoughts of rate increases going forward. With higher oil prices and a weakening housing market, employment growth should be much more moderate ahead.
That was much worse than expected, and the underlying numbers look weak across the board.
This report backs the Reserve Bank remaining on hold ahead. Weakness in retail and transport is being mitigated by a pickup in mining and construction.
The residential housing market is well off its peak now. The Reserve Bank remains on hold for now with domestic demand moderating.
These data back the RBA on hold and with a neutral bias for now, with the next move still looking down to us, albeit not until much later in the year.
The moderation is certainly very slow in arriving, even allowing for the usual lag in data, and these sectors' problems are clearly being mitigated by a pick-up in business investment and commodity exports.
They are concerned about inflation first and foremost but they already know that was going to happen because of petrol.
This kind of figure is bound to generate negative headlines for New Zealand. Higher oil prices also suggest the deficit could widen further.
The odds of a rate increase on Oct. 27 have shortened. The Reserve Bank is extremely worried over whether the economy will slow rapidly enough ahead to cap obvious inflation pressures. It looks increasingly like it will not.
Economic growth is slowing, and exporters are already suffering. It is a certainty that fourth-quarter net exports will subtract substantially from GDP growth while the current account deficit will widen further.
Importantly, we believe that if oil prices drop back from present levels then CPI inflation may already have peaked year on year and should be on the way down over the rest of 2006 - potentially rapidly if oil reverses significantly.
The underlying message from the data is that at the coal face producers are seeing higher costs, but as one moves closer and closer to the consumer these are reduced in both quarter-on-quarter and year-on-year terms.
