Analysis: New Zealand’s Data Fog Leaves Central Bank Flying Blind – Reuters

By Lucy Craymer and Wayne Cole

WELLINGTON – Delays in New Zealand’s economic data are causing uncertainty for policymakers, compelling them to make unexpected decisions, such as cutting interest rates a year earlier than anticipated, which has taken financial markets by surprise.

The impact of years of limited funding from successive governments has left the country’s statisticians struggling to keep pace with a fast-evolving economy, particularly in terms of inflation measurement.

New Zealand is among the few developed nations that report the consumer price index (CPI) quarterly instead of monthly, as the existing system, over two decades old, cannot produce monthly data. This limitation complicates the Reserve Bank of New Zealand’s (RBNZ) ability to identify economic trends promptly.

"We are behind in terms of most advanced economies," said Karen Silk, RBNZ Assistant Governor. "Monthly CPI… it would be delightful to get that."

Just a few months ago, in May, the central bank was contemplating additional rate hikes to combat inflation. However, by its next meeting in early July, it had gained confidence that cost pressures were easing, based on bank spending data and private business surveys. The central bank had to wait an extra week for the second-quarter CPI report, which revealed that inflation was declining more rapidly than expected.

Come August, the bank’s outlook shifted dramatically, leading to a 0.25 percentage point reduction in rates to 5.25%, with indications of further cuts to follow.

"We’re still waiting to find out what the June GDP is, that’s months back," remarked Governor Adrian Orr post-August decision. The June quarter GDP data is expected to be released on September 19, nearly two months after initial U.S. growth figures.

The official statistics agency states that they are meeting the International Monetary Fund’s 90-day guideline for releasing data.

Volatile Markets

Although New Zealand’s economy is relatively small, with a population of 5.3 million, its currency is actively traded, and global investors closely monitor its markets. Consequently, the RBNZ’s abrupt policy shift last month caused the currency to drop by a cent and resulted in a spike in bond prices.

The accuracy of the population count itself has come into question after the government eliminated paper departure cards in 2018, leading to less reliable and frequently revised data. The statistics agency has acknowledged that COVID-19 has influenced their modeling and is working to rectify these issues.

This is particularly significant given the role that migration has played in the current economic cycle.

Andrew Lilley, chief rates strategist at a financial firm in Sydney, pointed out that statistical agencies often contend with tight budgets since data collection tends to be a lower political priority. He emphasized the real-world impact of inaccurate statistics, stating, "For every 10 basis points that unemployment goes up unnecessarily because you have the wrong read on the data, that’s 2,000 people who are out of work."

Funding for the statistics bureau has surged by around 60% since 2020 to NZ$258 million to implement new initiatives and meet cost pressures, yet it faced cuts this year as the government sought to trim its budget deficit. Statistics Minister Andrew Bayly noted that enhancing economic datasets is among his priorities.

The current CPI system, established over 20 years ago, relies on field data collection and surveys from retailers. While a new system is being developed, this process is still some way off, according to the agency.

Economists are employing various methods to obtain insights into consumer spending, including internal bank card data. Recently, a bank added questions to its business outlook survey to better assess economic conditions.

Sharon Zollner, chief economist at the bank, stated that while having more data is advantageous, it also carries the risk of volatility. Quarterly figures may help mitigate this noise compared to more frequent monthly reports.

To improve data reliability, the statistics agency has started releasing selected monthly indexes comprising around 45% of the CPI, including more volatile components. Additionally, a monthly jobs indicator was introduced in 2019.

Jason Attewell, the agency’s general manager of economic insights, acknowledged there are limitations in accelerating new systems and data publication timelines. Still, he noted that they produce over 250 releases each year, showcasing their capabilities as a comparatively small national statistical office.

Grant Williamson, an investment advisor, remarked that a more timely CPI could significantly benefit economic decision-making processes, stating that "a little bit of money spent having more up-to-date data would be beneficial for everyone, including the Reserve Bank."