1. Inflation will dominate economic news this week
Stats NZ will publish the Q3 consumer price index on October 18 at 10.45am. This will be covered widely, as it could have a large bearing on what happens over the next 6-9 months with the official cash rate (OCR). Most expectations are that the rate of inflation will have slowed from Q2’s figure of 7.3% – if so, there may not be too much reaction. But in the event that the CPI got worse, it’d reinforce a higher path ahead for the OCR and mortgage rates.
2. Economy still ticking along?
Stats NZ may also publish the NZ Activity Index for September (it’s always a little tricky to nail down their exact schedule for this release). This monthly indicator for the annual pace of economic growth has been faring ‘ok’ lately, not amazing, but not terrible either. Another steady result for September would just help to push back any lingering recession fears for at least another month.
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3. A peak soon for construction cost inflation?
The latest CoreLogic Cordell Construction Cost Index showed further house-building cost inflation of 3.4% in the third quarter, pushing up the annual rate to 9.6% – both record highs. However, new dwelling consents are set to soften and the pressure on the supply chain for building materials (e.g. plasterboard) has certainly eased in recent times. So although the pipeline of already-consented activity that builders are still working through will keep a degree of pressure on capacity/prices in the coming months, the scene looks set for slower cost growth in 2023. That will obviously be welcomed by anybody wanting a new-build.
CoreLogic chief economist Kelvin Davidson: “A steady result for September would just help to push back any lingering recession fears for at least another month.” Photo / Peter Meecham
4. Migration trend has started to improve
Meanwhile, last week’s Stats NZ data showed further interesting developments on the migration front. To be sure, the flows remain weak, with the overall total for the year to August sitting at 10,970. However, if you look at the past few months in isolation, the figures have been stronger, with a pick-up in new foreign arrivals offsetting continued outflows of Kiwi citizens. In other words, the trend does seem to have turned and, although a full pick-up will take some time, it’s looking more likely that the brain drain may not be as big a story in 2023 as it has been this year. That will help skills shortages in our labour market and also provide some sort of boost to property demand.
5. Rents?
No doubt some landlords will certainly be hoping for a turnaround in the migration story. Now to be fair, net migration outflows aren’t the only consideration when it comes to tenant demand – but it does seem likely that they’ve been at least part of the story in terms of the slowdown in rental growth that we’ve seen lately. Indeed, last week’s Stats NZ data showed that rents in September were actually 1.3% lower than a year ago. In truth, that slump in the growth rate looks too sharp, so there may be something quirky about the latest data that eventually gets revised. Even so, less rental growth (or even falls) will be adding to the challenges currently being faced by landlords, but of course, a benefit for tenants struggling with affordability and other cost of living pressures.
- Kelvin Davidson is chief economist at property insights firm CoreLogic
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