Labour yesterday got the first real glimmer of hope it has had for months that it might be able to hang on at the next election.
Polling by National’s pollster, David Farrar, for the Taxpayers’ Union, showed a slight drop in National and an even smaller rise in Labour.
That was an end to the recent trend which has seen Labour fall while National has been on the rise.
The reversal is likely to have been partly the product of a feel-good factor which has been driving consumers over the last three months to spend much more freely than forecasters had expected.
Partly spurred on by this spending, the Reserve Bank yesterday confirmed that its battle with inflation is not yet over.
Consequently, the Bank raised the Official Cash Rate yesterday by 50 basis points to three per cent and is suggesting there will be more rises until it gets to four per cent.
One of the reasons for the spending that is driving the inflation became apparent with new wage statistics, which show wages are continuing to rise ahead of inflation.
StatsNZ reported yesterday that median weekly earnings from wages and salaries rose by 8.8 per cent to $1,189 in the year to the June 2022 quarter.
The 8.8 per cent annual increase in median weekly earnings from wages and salaries was the largest annual increase since the series began in 1998.
Reserve Bank Governor Adrian Orr suggested that the raised income figures were not so much because wages were going up but because workers were doing more hours.
“Hours worked have increased, which highlights the stressed labour market, people working longer, people on demand for longer,” he said.
Finance Minister Grant Robertson offered an ebullient response to the Stats figures.
“New Zealand finds itself in one of the best positions in the world, with the economy growing at an annual rate of 5.1 per cent, unemployment near record lows and debt at levels substantially below countries we compare ourselves with,” he said.
The New Zealand statistics mirrored yesterday’s news from Wall Street, where big retailers, Walmart and Home Depot, both reported results ahead of forecasts from even a month ago.
Like New Zealanders, American consumers are continuing to spend.
But the Reserve Bank’s decision to raise the Official Cash Rate to three per cent was a doubled-edged political sword for the Government.
On the one hand, it will put downwards pressure on house prices which is good news for first-home buyers, but it will raise the mortgage costs as existing homeowners come up for mortgage review.
In May, the Bank forecast that just over half of all existing mortgages would need to be repriced over the following 12 months.
It said it was likely that the average interest rate of all mortgage debt would increase from a current average of 3.14 per cent to 5.3 per cent over that time.
The Real Estate Institute’s (REINZ) acting CEO, Rowan Dixon said that REINZ’s July data showed that while the median property price was showing an annual decrease, affordability remained an obstacle for many — driven by rising interest rates, inflation, and tighter lending criteria.
“Sales counts have also declined across the country by 36.7% — in part due to higher mortgage interest rates, LVR’s and tightened lending criteria once again,” he said.
But the May forecast from the Reserve Bank appears to have got one thing wrong.
“Rising interest rates and falling house prices are expected to reduce households’ ability and willingness to spend,” it said.
“ About two-thirds of households own their homes, and about two-thirds of those homeowners have mortgages.
“Households with the highest levels of debt relative to their incomes will likely need to cut back their spending on goods and services in order to service their mortgages.
“Households with less or no debt will still face pressure from the higher cost of living, which is being only partially offset currently by nominal wage growth and higher interest rates on deposits.”
That is not how it has turned out.
Household spending is rocketing along. And with that National’s poll rating has fallen while Labour’s has risen very slightly.
The Taxpayers’ Union Curia poll released yesterday showed National on 34 per cent and Labour on 35.2.
Back in May, when the Reserve Bank was forecasting gloom for homeowners, National was ahead of Labour and was on 36.8 per cent, while Labour was on 34.2
It is reasonable to assume that there is a feel-good factor – evidenced by the high consumer spending — which is shoring up support for the Government.
“Demand in the New Zealand economy has remained resilient to global and domestic headwinds to date,” the Monetary Policy Statement said.
“Household spending has held up over the first half of 2022, despite low consumer confidence and high inflation.
“Overall household budgets have been bolstered by high levels of employment, savings built up during Covid lockdowns, and government support payments.
“However, there are very early signs that spending growth may be slowing.”
National’s Finance spokesperson, Nicola Willis, yesterday emphasised the labour constraints as a key factor boosting inflation and therefore forcing the Bank to raise interest rates which she described as a “massive blow to homeowners.”
“The Reserve Bank acknowledged ‘labour shortages are a major constraint on business activity, but the Government is still failing to fix our broken immigration settings,” she said.
“Businesses and consumers will continue to be squeezed by widespread skills shortages until that changes.”
Willis might, however, have drawn some comfort from a warning that Orr gave during his press conference yesterday.
“We are just stating a broad fact that if (Government) spending is higher than otherwise, it means everything else changes as well,” he said.
But he argued strongly, with a firmness that Bank economists commented on, that the Bank was determined to bring inflation under control.
“I will note that inflation really is a thief in the pocket,” he said.
“It’s a thief of Government as well.
“All of their normal expenditure is literally just to maintain the real level of services they are delivering.
“So the quicker we get on top of inflation, the better fiscal policy is able to get on and do its job.
“The quicker that businesses stabilise their pricing expectations, and people calm down on their wage expectations, the more likely is we will have a recession-free period and plenty of employment.”
And that is exactly what Labour will want now.