9 Aug 2022

Light traffic index falls 1.7 percent in July

1:59 pm on 9 August 2022

Freight movements were flat over July as Covid-19 and other winter illnesses stretch businesses.

The light traffic index, which points to economic activity six months ahead, fell 1.7 percent. Photo:

ANZ's monthly Truckometer Index, showed heavy traffic movements -- a real-time measure of current economic activity -- fell 0.1 percent, compared with a 2.7 drop in June.

The light traffic index, which points to economic activity six months ahead, fell 1.7 percent.

ANZ chief economist Sharon Zollner said although heavy traffic was below trend, businesses were not facing a drop off in demand.

"It's been a rough winter on the health front for Kiwis. That's clearly putting enormous strain on the health system, but the stresses and strains go well beyond that sector.

"Health-related absences from firms already struggling with understaffing are reducing the amount of economic activity that's possible to achieve," she said.

Zollner said the disappointing activity data could not be assumed to lead to lower inflation pressures.

"Indeed, wage growth of 7 percent in the June quarter shows exactly how hard firms are competing for scarce workers."

She said the light traffic index fell 5 percent over the past two months, taking it back to trend after being at a high level.

The variation in light traffic was a good indicator of consumers' willingness to spend, she said.

"Consumers might be reporting that they are severely lacking in confidence and don't think it's a good time to spend, but so far, they are still spending, and they are still driving.

"The RBNZ needs consumers to put their wallets away, as that's how it can beat back inflation."

Meanwhile, new figures from Stats NZ showed retail spending flatlined last month.

Sales using electronic cards, which cover about two thirds of consumer spending, fell 0.2 percent July on the month before and were 0.5 percent lower than a year ago.

Spending on consumables such as groceries and alcohol rose 2.2 percent during the month but that was largely offset by a 6.1 percent fall in fuel spending.

Leaving out fuel and car related sales, spending was 0.2 percent higher.

The data does not take account of inflation and the fall in fuel spending reflected recent falls in the price of petrol.

Westpac senior economist Satish Ranchhod said household spending was flagging and would continue to do so.

"Spending has been constrained by the rise in consumer prices that has eroded household's purchasing power, and we expect the pressure on household budgets will continue to build over the months ahead.

"In addition, many households will see the costs of servicing their mortgages push higher over the next few months."

The developing weakness would not deter the Reserve Bank in the short term in pressing on with interest rate rises, Ranchhod said.

"The RBNZ will still want to see a more meaningful slowdown. Consequently, today's result doesn't alter our forecast for a 50 basis point increase next week, with further hikes over the rest of the year."