When Good Data Gets Buried In Uncertainty. And Inflation Is Eye-watering To Look Through
Escalating conflict in the Middle East is likely to dominate market moves for the foreseeable future as the data flow slows and tensions intensify.
As expected, last week the Fed and BoE left monetary policy settings unchanged with both central banks both noting they are still assessing the impact of tariffs on growth and inflation. Meanwhile at home we saw Kiwi growth outpace expectations over Q1.
Our COTW looks at the increase in inflationary pressures stemming from offshore. Food prices are up 4.4%, and oil prices are heading higher.
Here's our take on current events
Conflict in the Middle East intensified over the weekend as the US launched strikes on three nuclear sites in Iran. And with geopolitical tensions running high, investors continue to move towards safe haven assets. Reclaiming it's tested safe-haven status the USD has regained strength seeing the Kiwi dollar trading back below 60c. Meanwhile, oil prices, already a leg higher last week, will likely continue on a path higher as tensions persist. Especially with the situation still fluid and the potential for retaliation by Iran. Markets will be closely watching the next steps in the geopolitical landscape. Particularly around the potential closure of the Strait of Hormuz. But for now, the risk remains tilted toward further downside for the Kiwi as the risk-off sentiment continues.
As the situation unfolds, we're thinking about the potential inflationary and growth impacts for the global and domestic outlook. Sustained disruption in the Middle East would likely exacerbate energy supply concerns, causing a bout of global inflationary pressures. And in today's already fragile environment, facing tariff trade disruption and an economy only just emerging from recession, a near-term rise in fuel costs would likely place additional pressure on Kiwi households and businesses, reinforcing downside risks to domestic growth. Like most things these days, we're hoping for a better outcome to play out… But we must flag the downside risks to the global and domestic outlook.
Overshadowed by the conflict in the Middle East, the US Federal Reserve and the Bank of England also met last week. Both central banks left policy rates unchanged as expected, and signalled a patient approach, awaiting more clarity on the impact of tariffs on growth and inflation.
Here at home, the latest GDP numbers out last week showed the pace of the economic recovery quickened over the start of 2025. Economic activity lifted 0.8% over the March quarter, slightly outpacing our expectation of 0.7% and significantly stronger than the RBNZ's 0.4% forecast. (See our full report here).
It's nice to have some good news. But we're holding our horses. The economy remains 0.7% below pre-recession levels. And in the year to March 2025, the Kiwi economy shrank 1.1%. We're still crawling out of the deep hole we fell into last year. A hole which has been even deeper on a per capita basis. On a per person basis, economic activity lifted 0.5% over the quarter but remains down 1.6% over the year.
Unfortunately, we may be crawling for some time longer. From here out, we're not expecting to see the same strength seen over summer period sustained. We expect that the damaging effects to growth from tariff volatility and uncertainty have already started to take effect this quarter. And we expect those headwinds to become more evident in the June quarter GDP figures.
More timely economic data are already starting to point to a slowdown. Electronic card spending has softened, and both the manufacturing PMI and services PSI fell sharply back into contraction in May. Weak confidence amid economic fragility and tariff uncertainty is resulting in softening demand. And it's under these conditions that we're expecting a weaker Q2 GDP outturn than the strong prints over the summer period.
Chart of the Week: Inflation is eye-watering to look through.
Monetary policy makers must look through short-term volatility, even if it's eye-watering.
Inflationary pressures from offshore are heating up. Food prices are up 4.4%, reflecting elevated global commodity prices. Higher prices for fruit and vegetables as well as meat drove the increase in food prices in May, up 3.6% and 1.7%, respectively.
Petrol prices fell 2.7% in May, but a reversal is likely this month following the conflict in the Middle East. Global oil prices are almost 20% higher since the start of the month.
Domestic inflation continues to ease, but frustrations remain. Rents for example, have cooled rapidly, rising just 0.1% over the month. Annual rental inflation is running at 2.8% - the slowest pace since January 2015. Household energy costs however are on the rise, up a chunky 2.3% over the month.
The risk here is that inflation flirts with the top of the RBNZ's target band in the near-term. We had already pencilled in a move towards 2.7% this year. But it's looking like we'll see a higher peak. In saying that, downside risks dominate the medium-term. Consumer prices will come under pressure amidst slowing global demand and excess capacity in the economy. There's risk that inflation falls below the RBNZ's 2% sweet spot, which would necessitate further monetary policy support.
The typical play for central bankers facing a spike in inflation is to look through it, especially if it is the result of a shock. Such is the case for the recent increase in oil prices. The impact should be temporary and an unwind likely. But as we've learnt from the RBNZ's last meeting, there's nervousness around rising inflation expectations.
Using Scoop for work?
Scoop is free for personal use, but you'll need a licence for work use. This is part of our Ethical Paywall and how we fund Scoop. Join today with plans starting from less than $3 per week, plus gain access to exclusive Pro features.
Join Pro Individual Find out more
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Scoop
5 hours ago
- Scoop
When Good Data Gets Buried In Uncertainty. And Inflation Is Eye-watering To Look Through
Escalating conflict in the Middle East is likely to dominate market moves for the foreseeable future as the data flow slows and tensions intensify. As expected, last week the Fed and BoE left monetary policy settings unchanged with both central banks both noting they are still assessing the impact of tariffs on growth and inflation. Meanwhile at home we saw Kiwi growth outpace expectations over Q1. Our COTW looks at the increase in inflationary pressures stemming from offshore. Food prices are up 4.4%, and oil prices are heading higher. Here's our take on current events Conflict in the Middle East intensified over the weekend as the US launched strikes on three nuclear sites in Iran. And with geopolitical tensions running high, investors continue to move towards safe haven assets. Reclaiming it's tested safe-haven status the USD has regained strength seeing the Kiwi dollar trading back below 60c. Meanwhile, oil prices, already a leg higher last week, will likely continue on a path higher as tensions persist. Especially with the situation still fluid and the potential for retaliation by Iran. Markets will be closely watching the next steps in the geopolitical landscape. Particularly around the potential closure of the Strait of Hormuz. But for now, the risk remains tilted toward further downside for the Kiwi as the risk-off sentiment continues. As the situation unfolds, we're thinking about the potential inflationary and growth impacts for the global and domestic outlook. Sustained disruption in the Middle East would likely exacerbate energy supply concerns, causing a bout of global inflationary pressures. And in today's already fragile environment, facing tariff trade disruption and an economy only just emerging from recession, a near-term rise in fuel costs would likely place additional pressure on Kiwi households and businesses, reinforcing downside risks to domestic growth. Like most things these days, we're hoping for a better outcome to play out… But we must flag the downside risks to the global and domestic outlook. Overshadowed by the conflict in the Middle East, the US Federal Reserve and the Bank of England also met last week. Both central banks left policy rates unchanged as expected, and signalled a patient approach, awaiting more clarity on the impact of tariffs on growth and inflation. Here at home, the latest GDP numbers out last week showed the pace of the economic recovery quickened over the start of 2025. Economic activity lifted 0.8% over the March quarter, slightly outpacing our expectation of 0.7% and significantly stronger than the RBNZ's 0.4% forecast. (See our full report here). It's nice to have some good news. But we're holding our horses. The economy remains 0.7% below pre-recession levels. And in the year to March 2025, the Kiwi economy shrank 1.1%. We're still crawling out of the deep hole we fell into last year. A hole which has been even deeper on a per capita basis. On a per person basis, economic activity lifted 0.5% over the quarter but remains down 1.6% over the year. Unfortunately, we may be crawling for some time longer. From here out, we're not expecting to see the same strength seen over summer period sustained. We expect that the damaging effects to growth from tariff volatility and uncertainty have already started to take effect this quarter. And we expect those headwinds to become more evident in the June quarter GDP figures. More timely economic data are already starting to point to a slowdown. Electronic card spending has softened, and both the manufacturing PMI and services PSI fell sharply back into contraction in May. Weak confidence amid economic fragility and tariff uncertainty is resulting in softening demand. And it's under these conditions that we're expecting a weaker Q2 GDP outturn than the strong prints over the summer period. Chart of the Week: Inflation is eye-watering to look through. Monetary policy makers must look through short-term volatility, even if it's eye-watering. Inflationary pressures from offshore are heating up. Food prices are up 4.4%, reflecting elevated global commodity prices. Higher prices for fruit and vegetables as well as meat drove the increase in food prices in May, up 3.6% and 1.7%, respectively. Petrol prices fell 2.7% in May, but a reversal is likely this month following the conflict in the Middle East. Global oil prices are almost 20% higher since the start of the month. Domestic inflation continues to ease, but frustrations remain. Rents for example, have cooled rapidly, rising just 0.1% over the month. Annual rental inflation is running at 2.8% - the slowest pace since January 2015. Household energy costs however are on the rise, up a chunky 2.3% over the month. The risk here is that inflation flirts with the top of the RBNZ's target band in the near-term. We had already pencilled in a move towards 2.7% this year. But it's looking like we'll see a higher peak. In saying that, downside risks dominate the medium-term. Consumer prices will come under pressure amidst slowing global demand and excess capacity in the economy. There's risk that inflation falls below the RBNZ's 2% sweet spot, which would necessitate further monetary policy support. The typical play for central bankers facing a spike in inflation is to look through it, especially if it is the result of a shock. Such is the case for the recent increase in oil prices. The impact should be temporary and an unwind likely. But as we've learnt from the RBNZ's last meeting, there's nervousness around rising inflation expectations. Using Scoop for work? Scoop is free for personal use, but you'll need a licence for work use. This is part of our Ethical Paywall and how we fund Scoop. Join today with plans starting from less than $3 per week, plus gain access to exclusive Pro features. Join Pro Individual Find out more
Techday NZ
7 hours ago
- Techday NZ
High-performance tech framework attracts global police sector
A workplace performance framework developed in New Zealand using research into the psychological breaking points of elite athletes is attracting interest from police and defence sectors in North America and the UK. Vantaset, established by performance specialist Craig Steel, has created a platform-as-a-service (PaaS) aimed at improving workplace productivity through methods first engineered for elite athletic performance. Steel's team includes a former All Blacks manager and two Olympians. The company's approach has prompted contract signings with World Policing in the UK, which provides technical and governance advice to thousands of police forces worldwide, and an international consulting firm that advises government security and law enforcement agencies across Europe and North America, including the FBI. This move comes after the deployment of the technology in over 100 New Zealand organisations, including the NZ Police. The transformation project within the NZ Police was previously described by international consultants as one of the most successful government sector transformations in history, resulting in heightened staff engagement, greater public trust, and a reported reduction in crime by over 20%. International interest Steel says discussions are ongoing with police chiefs and defence experts in North America who have indicated a need to address significant challenges in staff engagement and retention. The Vantaset system, which took seven years and USD $7 million to develop, is now under consideration for pilot trials in these regions. "They told us this was the most promising process they've seen to address what they describe as a leadership and engagement crisis affecting critical agencies globally, so piloting the process is the logical next step in demonstrating its effectiveness in this environment." According to Bernard Rix, Chairman of World Policing, Vantaset's proven track record in New Zealand was a key factor in establishing the partnership. "Given the demonstrable impact Vantaset's technology had on New Zealand Police, we're confident it can be implemented in other law enforcement agencies around the world to help them improve the performance of their respective forces, which is why we've partnered with them." Origins in sport Steel's original research focused on 'athlete capitulation' — the psychological moment an athlete fails under pressure. By analysing and reverse-engineering this breakdown, he created a framework responsible for more than 20 World Cup and equivalent titles for New Zealand athletes and allowed personal bests to be delivered on demand in high-pressure environments. Quantitatively, the framework enabled New Zealand athletes to achieve personal bests 87% of the time at Tier 1 events, compared to the international average of 8-10%. Steel commented on the wider impact of the approach: "What began as a system for world-class athletes is now changing the way organisations develop and engage their workforce," says Steel. "We're focused on helping organisations, including the Police, improve the impact and effectiveness of their staff as their personal performance is vital to the nations they represent." Adapting for organisations Team members, such as Olympians Moss Burmester and advisor Anthony Moss, are now supporting the transition of high-performance sporting principles into broader workplace environments, including government agencies and corporate boardrooms. Steel adds that organisations' typical risk-averse cultures can restrict innovation: "Our work began with high-performance sport. But when we were invited to trial it in business, the results were just as transformative." He said the platform codifies elite performance in a way that enables consistent support across all organisational levels. "It's about unlocking the potential that already exists in their business as opposed to just trying to mitigate its risks, which crushes innovation. "In elite sport, the goal is never to avoid failure, it's to produce something exceptional. But in the business world, most performance management systems are built to manage issues when they occur rather than amplifying the organisation's capacity to perform," he says. Steel describes Vantaset's digital platform as a tool for large-scale adoption of high-performance principles. "What we've done is build a high-performance operating system that organisations can scale across their entire workforce so they can embed a proven way of working that brings out the best in everyone. The focus isn't on minimising mistakes, it's on helping people be the most effective versions of themselves, as that's what drives growth and improvement." Over 30,000 employees have used Steel's framework so far. The company is now targeting an expansion into other Five Eyes nations, including the United States, Australia, Canada, and the United Kingdom. Strategic distribution To facilitate international growth, Vantaset is engaging with consulting partners capable of distributing the system into both public and private sectors. Steel said Five Eyes countries were prioritised due to national security and trust considerations. "We've chosen to focus on the Five Eyes nations because we recognise that when it comes to working with defence forces and critical government agencies, trust and national security considerations are paramount. "If we were to work with non-aligned or competing jurisdictions, it could close doors to the agencies in the nations we're best positioned to support. This strategic alignment should ensure our eligibility to work with the most sensitive public sector environments, where human performance is most vital." The Vantaset platform is now being positioned for broader global uptake with ongoing dialogue involving international consulting firms and law enforcement agencies.
Scoop
11 hours ago
- Scoop
Flood Of Interest To Invest In New Zealand
Minister for Economic Growth Hon Erica Stanford Minister of Immigration The Government is attracting new migrants to bring their capital, experience and skills to New Zealand with a flood of formal interest in the new 'golden' visa. Since only April – less than three months – Immigration New Zealand (INZ) has received 189 applications for the Active Investor Plus visa, significantly more than the 116 applications received over more than two-and-a-half years under previous settings, Economic Growth Minister Nicola Willis says. 'New applications under the scheme represent a potential $845 million of new investment in New Zealand business.' "Attracting investment to New Zealand is crucial to the country's economic growth. It means Kiwi businesses can expand, hire and grow – and that means more opportunities for New Zealanders. 'Investor migrants are clearly attracted to New Zealand's growing reputation as a safe, pro-business, high-potential economy. In a world where countries compete for dollars and talent, it's great to see New Zealand's growth prospects being recognised.' 'New investors don't just bring their dollars to our shores, they also bring skills, knowledge and experience that will drive future economic development. It's a win-win.' Immigration Minister Erica Stanford says the interest shows investors hear the call loud and clear: New Zealand is open for business. 'We welcome your capital, your knowledge, and your contribution to New Zealand's economic growth,' Ms Stanford says. 'We're seeing strong momentum from global investors, particularly across Asia and North America. This reflects our growing reputation as a stable, forward-looking destination for investment and innovation. 'These are smart, flexible and nuanced immigration solutions to help stimulate economic growth.' On April 1 the Government changed the Active Investor Plus visa to a simple two-pronged system: the Growth category and the Balanced category. Other changes included expanding the scope of acceptable investments and removing potential barriers to investment, such as the English language requirement. As at 23 June, 100 applications had been approved in principle, and of those, seven had transferred and invested their funds in New Zealand and had been granted a resident visa. Five of those were invested in the Growth category and two under the Balanced category, totalling a total minimum investment of $45 million. The Growth category for this Visa focuses on higher-risk investments, including managed funds and direct investments in New Zealand businesses. It will require a minimum investment of NZD $5 million for a minimum period of 3 years. The Balance category focuses on mixed investments, with the ability to choose ones that are lower risk. There will be a minimum investment of NZD $10 million over 5 years.
