A 30-YEAR spike in New Zealand’s annual inflation rate is likely to be a precursor to what economist Cameron Bagrie calls a tectonic shift in global economics.
He is predicting an end for the foreseeable future of low inflation and low interest rates and some hard-nosed action by central banks to rein in inflation.
“The environment we have had for the last 20 years will not be like the environment we will have for the next 10 or 20 years due to a major shift under way leading to a lot more persistent inflation,” Bagrie said.
“People are pushing against globalisation, baby boomers are spending, governments are stimulating economies and redistributing wealth, climate change policies are starting to impact and there has been a shift in wage influence from employers to employees.”
Annual inflation hit 5.9% in the December quarter, the highest rate since 1990, driven by over-stimulated global economies, tight labour markets and supply chain disruption.
Bagrie described the NZ economy as overheated and says wage growth pressure is growing.
He disputes as an underestimate StatsNZ figures, released this week, that wages grew 2.6% for the year.
Given these pressures, he believes NZ inflation will be 6.5% by the end of the year, requiring a heavy-handed response from the Reserve Bank to stymie demand, which will lead to higher fixed-term interest rates.
Grain and stock feed costs are on the rise, with Canterbury arable farmer Brian Leadley saying they had no alternative but to increase prices for uncontracted grain and seed.
Waikato stockfeed company Nutrinza’s latest prices has PKE at $413-$431 a tonne, depending on the port of entry, while maize silage prices, which are linked to the milk payout, are about $300-$340/t/DM.
Round Bale Grass silage is between $450/t and $600/t DM, depending on quality.
Southland agricultural contractor Daryl Thompson says his fuel bill has increased more than $300,000 in the last year, although some of that is due to more harvesting in a high-growth season.
“Everything has gone up, every supplier has increased their prices,” Thompson said.
Last October Thompson lifted his rates, but such has been the deluge of price increases since, he moved again from January 1 with current rates 6% higher than a year ago.
“It’s a scary situation,” he said.
“Dairy farmers are our major clients and everything has increased on an $8-$9/kg MS payout so they are able to absorb those rates, but my fear is what happens if the payout falls to $4, $5 or $6/kg MS.?”
With fuel and fertiliser both international commodities, there is some hope prices could eventually fall again.
Ravensdown supply chain manager Mike Whitty said global fertiliser prices have been driven by a significant lift in demand, high crop prices, favourable weather and low food inventory.
The normal supply-demand equilibrium has been further distorted by rising freight and energy prices, China ceasing exports of fertiliser and reports Russia will stop exporting ammonium for two months.
“They’re massive increases and then there is the added equation that everything is paid in US dollars, so the currency is part of that,” Whitty said.
Soaring urea, DAP prices have curbed demand and forced NZ farmers to use alternative options.
Road Transport Association chief executive Nick Leggett fears we have not seen the end of fuel price rises.
“I’m really concerned this economic uncertainty may continue for some time,” Leggett said.
Rabobank senior agricultural analyst Emma Higgins says 2022 will be the sixth consecutive year of profitability, but warns the future is unpredictable with headwinds gathering.
BNZ senior economist Doug Steel says several years of buoyant product prices has allowed $2 billion in the primary sector to be repaid in the last two years.
Westpac senior economist Satish Ranchhod (CRRT) expects a series of official cash rate hikes by the Reserve Bank this year could push the rate to more than 3% in 2023.
