It remains a tricky situation for the Reserve Bank. There\u2019s still spare capacity, and slower economic growth will also tend to dampen inflation. But price rises are already filtering through the economy, and the bank is very wary of “second round” inflation, where wage demands and inflation expectations rise. The chances of an OCR increase in July or even next month definitely seem to be building. Mortgage rates have already risen anyway. <\/p>\n
2. Lending volumes may be poised to slow <\/p>\n
Speaking of mortgages, on Wednesday this week we\u2019ll get the Reserve Bank\u2019s figures on March lending volumes. After a strong run of growth, these figures may now start to soften a bit, as interest rates creep up and economic confidence dips. As always, I\u2019ll be looking closely at the splits by loan type (e.g. house purchase, bank switch), the loan-to-value ratio, and debt-to-income ratio. It could be a fairly normal month, although investors have recently been taking up more low-deposit finance after the LVR rules were loosened last December. <\/p>\n
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Cotality chief economist Kelvin Davidson: “A softer labour market will tend to restrain house sales and prices.” Photo \/ Peter Meecham<\/p>\n
3. Employment growth petering out? <\/p>\n
I\u2019ll also be keeping an eye on Stats NZ\u2019s filled jobs release for March. There have been hints of a small upward trend for employment in the past few months, but there\u2019s every chance that renewed caution from businesses in light of the Iran conflict will put a pause on hiring activity. And a softer labour market will tend to restrain house sales and prices. <\/p>\n
4. Other economic indicators could also start to soften <\/p>\n
We might be in line for a disappointing few days, with the results of other economic indicators. Stats NZ will also release the March NZ Activity Index on Tuesday, and although the index has been trending higher over the last few months, it would be no surprise at all to see a slowdown in the March results. <\/p>\n
We\u2019ll also get ANZ\u2019s business confidence survey on Thursday and the consumer equivalent on Friday. Expect both to highlight wariness in the economy, with input cost\/output price\/inflation expectations measures worsening. <\/p>\n
5. Dwelling consents to join the slide? <\/p>\n
Adding to the somewhat grim tone of this week\u2019s column, dwelling consents (March data due from Stats NZ on Friday) may also be set to slow following some steady growth in previous months. Granted, lags in the process may mean that the Iran conflict, higher interest rates, and fears of rising construction costs may not have affected March\u2019s consent figures too much. But a slowdown here could also be on the cards from April onwards. <\/p>\n