Smite for the right. As expected, the Reserve Bank governor, Glenn Stevens, took aim at the asses in the commentariat who constantly extrapolate the Sydney property boom to the rest of the country. He raised his jawbone and smote them hither and thither in his speech in New York early today, our time. “Popular commentary is, in my opinion, too focused on Sydney prices and pays too little attention to the more disparate trends among the other 80 per cent of Australia,” he told the lunch sponsored by Goldman Sachs.

He also added that interest rates were only one factor driving house price rises, and that they need to be balanced against other financial considerations. And to those galahs constantly chirping about “something has to be done”, Stevens pointed out that the rate of credit growth for housing had not picked up further. It’s amazing how few people read the RBA’s monthly report on lending issued on the last day of the month. The February report showed lending for housing (and especially investors) was plateauing, but that credit for business was starting to grow quickly and the rate of growth had reached five and six year highs! — Glenn Dyer

Flaming galahs. And there was a further message for the galahs and the sparrows, who can be found chirping via the daily newspapers. Stevens explained some of the forces that have battered (and continue to batter) the economy (something forgotten by most commentators) by pointing to the adjustment it has had to make to the largest terms of trade episode in 150 years. “To say there have been some pretty powerful, and disparate, forces at work is something of an understatement, even for a central banker,” he said.

The loosening of monetary policy and the surge in property investment (new and old) has countered those forces. These moves have their dangers, but also enormous benefits to the economy (and the budget), with higher housing prices helping to increase “perceived wealth and encourage higher construction, through higher spending on durables associated with new dwellings, and so on.” That is what’s keeping the recessionary wolves at bay, not the purity of fiscal policy  — the need for cut, cut, cut, lower wages, dastardly unions, dopey employers or any other bogey found/invented by the media or the pet-shop galahs. — Glenn Dyer

Milk of iron ilk. Just as overproduction and aggressive exporting is impacting global iron ore and oil prices (and profitability), the global dairy industry is up to its udders in a similar campaign by New Zealand, the EU (led by Ireland), the US and Russia as demand from China slides. The biweekly Fonterra-run GlobalDairyTrade auction last Wednesday night saw a 3.6% drop in the average price for milk products to $US2620 a tonne — down 51% from the peak dairy price in February 2014.

Statistics New Zealand said last month that export values of milk powder, butter and cheese fell 41% in the year to February to $NZ913 million. More than 75% of the drop in value was due to falling exports to China. So it’s with a sense of wonderment that Ireland recently said it’s planning a 50% expansion in its dairy production. That sounds like the Irish government is setting up dairying to follow housing down the boom-and-collapse route. Fonterra, the world’s biggest dairy company has told farmers to expect a payout of $US4.70 per kilogram of milk solids — under the $US6 kilo that many farmers need to be viable, according to Kiwi rural analysts— Glenn Dyer

Inflation/deflation it’s all hot air to me. Well, not quite for economies such as China and its deflation-stricken manufacturing sector, Greece (self-explanatory) or Japan, which is struggling to avoid another brush with deflation. But for some economies, deflation is a big temporary positive, especially when it results from an overshoot of disinflationary forces — such as falling oil prices. That’s true for the UK economy, and the Kiwi economy, as we saw yesterday.

The NZ Consumers Price Index fell 0.3% in the March quarter, after a drop of 0.2 in the three months to December. That left the annual inflation rate at 0.1% in the year to March, the lowest since early 1999. But that’s “good” deflation because it hasn’t started to become entrenched, its merely the reaction to a sharp fall in the price of one commodity and continuing strength in the Kiwi currency.

Australia’s CPI is out tomorrow and most forecasts centre on a quarter on quarter rise of 0.1% or 0.2% and year figure of around 1.2%. But as the year goes on, the slide in dairy incomes will start having an impact on the Kiwi economy. The slowing spending rate on the rebuild of Christchurch, as well as the slow throttling of exports by the high Kiwi dollar, will also have an impact. — Glenn Dyer

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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