Economic Data Challenges in New Zealand

By Lucy Craymer and Wayne Cole

WELLINGTON (Reuters) – Lags in New Zealand’s official economic data are creating uncertainty for policymakers, forcing them to cut interest rates a year earlier than projected, surprising financial markets.

Years of tight funding by successive governments have hindered statisticians from keeping pace with the rapidly changing economy, particularly regarding inflation.

The more than two-decade-old system for calculating data is unable to provide monthly figures, making New Zealand unique among developed nations in reporting Consumer Price Indexes (CPI) quarterly instead of monthly. This hampers the Reserve Bank of New Zealand (RBNZ) in recognizing turning points on time.

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

As recently as May, the central bank was contemplating further rate hikes to control inflation. However, by July, insights from private business surveys and card spending data indicated easing cost pressures. They had to wait for the official CPI report for the second quarter, which revealed inflation slowing more than anticipated.

By August, the outlook had dramatically changed, leading to a rate cut of a quarter point to 5.25%, with indications of more cuts ahead.

Governor Adrian Orr noted, “We’re still waiting to find out what the June GDP is, that’s months back.” The June quarter GDP is not expected until Sept. 19, nearly two months after the first reading on U.S. growth.

Stats NZ, the official data bureau, confirms that they comply with the International Monetary Fund’s 90-day guideline.

VOLATILE MARKETS

Despite being a small economy with a population of 5.3 million, the New Zealand dollar is widely traded, and global investors closely monitor its markets. Consequently, the RBNZ’s abrupt shift last month reduced the currency value and boosted bond prices.

The accuracy of population statistics is also in question since the government eliminated paper departure cards in 2018, complicating data reliability and regular revisions. Stats NZ mentioned COVID-19 affected their modeling, and they are working to address these issues, crucial due to the significant impact of migration on the economy.

Andrew Lilley, chief rates strategist at Barrenjoey in Sydney, lamented the often limited budgets for statistics departments, which usually receive low political priority.

“For every 10 basis points that unemployment goes up unnecessarily due to inaccurate data, that’s 2,000 people out of work,” Lilley stated. “Funding for good data collection should be a priority.”

Since 2020, the funding for Stats NZ has increased by around 60% to NZ$258 million ($160.76 million) to manage new initiatives and cost pressures, but faced cuts this year due to government spending reductions aimed at alleviating the budget deficit.

Statistics Minister Andrew Bayly noted, “There’s always a case to increase funding to do more,” emphasizing the importance of improving economic datasets.

The system utilized by Stats NZ for producing CPI was designed over 20 years ago, relying on data collection through store visits or retailer surveys. Though a modernized system is being developed, completion is still a distance away.

Economists employ various methods to better understand spending trends, including internal bank card data. ANZ Bank has introduced additional questions to its business outlook survey to enhance condition assessments.

Sharon Zollner, chief economist at ANZ Bank, remarked that while more data is beneficial, there is also a risk that monthly CPI could present volatility, unlike quarterly figures, which can provide a clearer picture.

To improve data, Stats NZ has started releasing selected indexes monthly that comprise roughly 45% of the CPI, including the more volatile components and initiated a monthly jobs indicator in 2019.

Jason Attewell, general manager at Stats NZ, acknowledged the current constraints hindering new system implementations and accelerated data releases.

“Stats does pretty well punching above our weight as a small, relatively speaking, national statistical office,” he added, noting the office produces over 250 releases annually.

Grant Williamson, an investment advisor at Christchurch’s Hamilton Hindin Green, advocated for a monthly CPI with reduced lag, stating, “A little money spent on more updated data would be beneficial for everyone, including the Reserve Bank.”

($1 = 1.6049 New Zealand dollars)