Bernard Hickey suggests walking school buses and budget airlines to beat the recession.

Annual inflation was 3% in the March quarter, having fallen from a recent high of 5.1% in September last year. The Consumer Price Index (CPI) for the June quarter is set to be released at 10:45am on Thursday July 16.

Westpac economists said they expected quarterly inflation to be 0.4%, with an annual rate of 1.7% from June last year. They expect a rise transport prices to make the biggest contribution to the figures, with household related prices being the second largest contributor to price growth.

Westpac economists said a notable feature of the June CPI outlook is that food prices are expected to show no inflation over the quarter.

“If so, this would be a marked change from recent years. Food prices have lifted on average 1.7% per quarter over the past 2 years reflecting world trends. This has added an average 0.3 percentage points per quarter to headline inflation over this period. This inflation is expected to end in Q2 and an important part of the expected pull back in overall inflation,” they said.

ANZ National economists are expecting headline inflation to be 0.3% from the previous quarter and 1.6% year-on-year. They expect a rise in petrol prices over the quarter will put upward pressure on the headline figure.

“The weak domestic economy, the opening up of significant spare capacity and a turn in the labour market are now clearly manifesting in reduced pricing pressure in NZ,” ANZ National economists said.

“Construction prices (a key source of inflation during the upswing) are expected to rise by a modest 0.2 percent in the quarter, taking annual growth to just 1.3 percent. Rents are expected to rise by a similar magnitude. Petrol prices rose by 3.5 percent in the June quarter and see petrol make a 0.2 percentage point contribution to the quarterly increase in the CPI,” they said.

ASB economists expect inflation to be slightly higher than the others, with quarterly inflation of 0.6% and an annual rate of 2% followed by an annual 1.3% rise in September.

“Inflation continues to fall sharply from 2008’s petrol-induced peak, and the unravelling of the spike will drive the annual inflation rate down further in the September quarter. However, masked by the gyrations in the headline rate lies a gradual reduction in underlying inflation pressures. The marked weakening underway in the labour market will pare wage growth considerably,” they said.

“Furthermore, anecdotes suggest a greater prevalence for employers and employees to agree to wage freezes in order to minimise job losses. Housing construction cost increases have now started to moderate in the wake of considerable falls in building work, and will contribute to lower inflation over the next year. Pricing power is also going to remain weak in the current environment.”

prices/consumer

A Standard and Poor’s rating below ‘BBB-’ is widely referred to as “junk” status.

Under the RBNZ’s new regime it will be mandatory for all deposit takers to obtain a credit rating by March 2010.

“PFCU is the first credit union in New Zealand to be rated by Standard & Poor’s. We view the credit union’s sustainable business model, very good asset quality, and overall sound financial profile as strengths that underpin the ratings,” Standard & Poor’s credit analyst Gavin Gunning said.

“Further, we consider PFCU’s competitive position to be sound as it is not in direct competition with banks, unlike many community-based and regional credit unions,” Gunning said. 

“Moderating the strengths are PFCU’s very small capital base, key person risk due to its small staff strength, and basic operational risk management. In our opinion, PFCU’s very small capitalization provides only modest protection against a major operational risk event, even if such an event is of a low probability or difficult to predict,” he said.

“The stable outlook reflects our expectation that PFCU’s business and financial profile will remain sound during the current economic downturn in New Zealand and the impending period of regulatory change affecting the New Zealand credit union sector. We expect PFCU’s good asset quality would continue to be supported by more favorable employment trends affecting New Zealand Police compared to the general community.”

“Negative ratings momentum is mostly likely to eventuate should a major operational risk or other negative event impact PFCU’s financial profile, given its very small capital base. Deterioration in its business profile and customer franchise, or a material weakening in its asset quality, liquidity or other financial parameters could also contribute to negative ratings momentum. Positive ratings momentum is not expected in the short-to-medium term.”

Established 35 years ago, PFCU provides personal lending and deposit services to members of the New Zealand Police and their families.

New Zealand’s banks tightened home loan lending ratios in late 2008 as the global financial crisis worsened a slump in the property market. Many banks dropped their 100% lending offers and moved to 80% being the maximum loan to value ratio.

Here are some cuts from the article. We welcome your thoughts and comments below.

For the first time since banks tightened mortgage lending last year, Westpac has started advertising for home buyers with a deposit of less than 20 per cent.

Mortgage brokers have reported other banks lending at more than 80 per cent of the value of the property.

Mike Pero Mortgages chief executive Shaun Riley said Westpac had been selectively lending up to 90 per cent of a property’s value.

He said Westpac was probably thinking property prices had either bottomed out or would not fall much further and it was now more comfortable about doing a higher volume of lending above 80 per cent of property value.

Westpac spokesman Craig Dowling said a combination of lower rates, funding being more accessible and vendors being more realistic on prices meant there were more opportunities for buyers.

He would not say how low Westpac would be prepared to go, but a 10 per cent deposit was within lending bounds. The bank would probably not provide 100 per cent mortgages.

ANZ National spokeswoman Virginia Stracey-Clitherow said it generally did not offer new lending in excess of 80 per cent, and it had no plans to change the policy.

ASB retail banking chief executive Ian Park said it still had a policy of obtaining a 20 per cent deposit, and he believed it was inappropriate to review that in the current market.

BNZ said it was continuing to provide home loans to customers with less than a 20 per cent deposit, but every application was treated on its merits.

Kiwibank acting chief executive Paul Brock said it had always lent to people with less than 20 per cent deposit, but some of its special interest rates were not available to those borrowers.

Your view?

Should banks be easing their lending ratios? Will this lead to another bubble? What will this mean for the correction in the housing market that some argue New Zealand needs?

We welcome your comments below.

The Fonterra loan to RD1, which is interest bearing and due to be fully repaid by April 30 next year, will be to assist farmers under financial pressure due to the current lower payout environment, Fonterra Director of Milk Supply Barry Harris said.

“It’s a tough time for our farmers and we have been looking at every avenue we can to help them, particularly in finding ways to cut costs and manage cash flows while continuing to keep their farms productive,” Harris said.

“This opens up another option and some flexibility for farmers needing essential supplies to keep their farms running in what is going to be a difficult season for many,” he said.

RD1 CEO John Lea said RD1 would be “promoting the details of the offer to farmers over the coming months, and continuing to offer practical advice about managing farm input costs.”

“We have a real partnership with our dairy farmer customers, and it’s great to be able to offer this additional flexibility at a time when things are so tight. The other good news is that we’re seeing international prices come back for major inputs like fertilisers, which will flow through to farmers as we go through this season,” Lea said.

RD1 is New Zealand’s largest retailer of agricultural services to dairy farmers. It is 50% owned by Fonterra, with the other 50% owned by Australia’s Landmark Rural Holdings Limited. Fonterra’s Barry Harris is also a director of RD1 Limited.