Tony Alexander

Economic Commentaries

Weekly Overview – Feb. 5

Wednesday February 5th 2014

Interest rates are headed up this week and borrowers should be careful in their assumptions about the peak in rates and how long rates stay high. What I have picked up from two days visiting Christchurch this week (on top of not a single soul believing the CBD will get anywhere for many years) is widespread expectations that the residential rebuild period will take a lot lot longer than commonly thought. The RB last week said they assume a peak of 2016 – 17. One person in Christchurch suggested 5 – 8 years as the reconstruction duration given the delays because of huge compliance issues, staff shortages, and product delays.

As for immediate interest rate pressures, there is as yet no evidence of a generalised lift in wages growth, but it will come. Job numbers in the December quarter soared 1.1% after jumping 1.2% in the September quarter. A gain of just 0.5% had been commonly predicted.

This week I take a look at whether evidence exists as yet of a surge in business investment which might boost productivity and curtain cost pressures. The answer is no – not yet.

On the FX front the main movement of interest was a two cent rise in the Aussie dollar after the RBA yesterday indicated they are not planning to cut rates further, and made no mention of concern about the Aussie dollar being high.