The recent run of data accentuating the economic recovery – and the stubbornness of domestic inflation – has brought forward the likely timing of the next interest rate cycle. We now expect the RBNZ to begin tightening in 25bp clips from March 2010.
Indeed, a case can be made for an even earlier start, but we’re not convinced that the RBNZ will be prepared to do an about-face on its recent dovish rhetoric too quickly.
Retail sales rose 1.1% in August, more than twice as strong as we or the market expected. There have been plenty of factors to back a revival in consumer spending: stronger consumer confidence, rising net migration, rising house sales, improving access to credit and the ongoing punch from prior interest rate cuts. And while the monthly record has been patchy, the latest figures provide some confirmation that the trend is picking up, albeit from a low base.
Clothing stores posted the strongest gain in the month, up 6.5%. August this year was the warmest since records began 155 years ago, which seems to have encouraged people to buy their new season fashions a little earlier than usual – just as the bitterly cold May saw purchases of winter woollies brought forward.
Housing-related storetypes generally posted strong gains as well, reflecting the rising turnover in the housing market.
