Commentary

CPI in New Zealand at 3.2% per Dec '07

As released today by Statistics New Zealand the Consumer Price Index (CPI) as of December 2007 has increased to 3.2%, up from 1.8% in the 12 months ending September 2007. As this is above the Reserve Bank of New Zealand's target range of 1% to 3% we believe that it is unlikely that the current rates will be cut any time soon.

Prices have been driven in particular by transport (+5.9%) and food (+4.4%). Some local markets, e.g. Auckland Region, have seen an increase in housing costs of 10% during 2007.

With the interest rate high - for deposits with daily availability banks offer 8% and more - the kiwi dollar will probably stay quite high compared to yen, US-dollar, and Euro. The upside is currently limited by a large inflow of cash into banks and also by possible rate cuts in the US.

Possible Investment Impact

With regards to investing in NZ we believe that it is wise to stay away from the property market in New Zealand. Prices for properties have increased well ahead of the CPI and well ahead of the yearly increases of income from salary and wages. Approximately 50% of the available family income is currently required for housing up from about 33% a few years ago. Affordability is therefore reduced.

Also, investments in consumer oriented stock should be carefully selected. Investing more conservatively would suggest to buy stocks of utilities or other infrastructure including telecommunication.

Foreign investors also need to look at the exchange rate for the kiwi dollar. Short term (12 months) we expect the kiwi dollar to be fairly stable. If, however, the Reserve Bank of New Zealand (RBNZ) starts to cut the rates - we assume this might be possible in 2009 - the kiwi dollar might loose value against the US dollar and the Euro.

Disclaimer

Please note that the content on this page is a commentary and represent our own opinion regarding the markets, stocks, and securities mentioned. By no means do we accept any reliability from possible losses of investments based on the information on this page.

Sources: Statistics New Zealand, Reserve Bank of New Zealand, own research