NZD First Impressions: Retail Trade

The volume of goods sold fell by 2.3%. That is lower than the forecast for muted 0.3% rise, and well below the average analyst forecast for a 1.7% gain.

Today’s fall follows a 0.9% drop in spending in first quarter, leaving spending volumes down 3% through the first half of the year. Spending in core categories in down 2%.

Looking under the surface, households have been winding back their spending on durable items like electronics and furnishings. There has also been a fall in vehicle sales. Those are the same categories where spending rose strongly when Covid-19 first arrived on our shores and measures to protect public health prompted a shift away from spending on services.

Now that health restrictions have been rolled back, and with the opening of the borders allowing tourists back in the country, there is increased spending on hospitality and accommodation services. However, the increases have not offset the reduced spending in other areas.

Many households have been shielded from the impact of interest rate increases to date due to the high level of mortgage fixing in the New Zealand market. Over the coming months, debt servicing costs will rise sharply for many households as they refix at higher interest rates. And coming on top of today’s soft result, that points to weak spending through the back part of the year.

Today’s result further reinforces our expectation that the OCR will peak at 4% by the end of this year, in contrast to the RBNZ’s projections which highlighted the risk of a higher peak.