Monthly economic review: May 2014

12 May 2014

The Monthly Economic Review is an overview of the New Zealand economy. It includes the latest data on New Zealand’s economic growth, unemployment, inflation, merchandise trade and balance of payments figures, along with certain financial data (such as the Reserve Bank’s official cash rate). The unemployment rate, economic growth and central bank interest rates for several of our main OECD trading partners are also included. Each publication highlights a specific topic of interest. The Monthly Economic Review is produced eleven times per year.

Recent data and events

New Zealand’s unemployment rate remained at six percent in the March 2014 quarter, with a 0.9 percent rise in both employment and the labour force over the quarter. The labour force participation rate, at 69.3 percent, rose to its highest level since the survey commenced in the 1980s. There was an increase in both full-time and part-time employment, with full-time employment rising by 1.1 percent over the quarter and parttime employment rising by 0.3 percent. New Zealand’s unemployment rate was the 11th lowest in the OECD.

Inflation was 0.3 percent in the March 2014 quarter, resulting in an annual inflation rate of 1.5 percent in the year to the March quarter. In the March quarter, an 11.3 percent rise in the excise duty on tobacco and tobacco products from 1 January 2014 was a significant driver to higher consumer prices. Costs associated with the purchase of newly built houses rose by 1.2 percent.

Reserve Bank Governor, Graeme Wheeler, lifted the official cash rate by a further 25 basis points to three percent in April. This followed the commencement of a tightening in monetary policy in March, where the official cash rate was also lifted by 25 basis points. In the latest media release, the Governor commented that economic activity has gained considerable momentum, reducing spare capacity within the economy, and leading to inflationary pressures. This has been offset by a higher exchange rate, which has resulted in lower tradables inflation.

The exchange rate on a trade weighted basis has reached a new peak since it was floated. During the month of April, the trade weighted index (TWI) averaged 80.2 index points. The Reserve Bank considers the exchange rate to be overvalued. The Governor commented that the Bank has the policy option of intervening in the currency if it thought the exchange rate was significantly out of line with economic fundamentals.

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