Analysis-New Zealand’s data fog leaves its central bank flying blind

By Lucy Craymer and Wayne Cole

WELLINGTON (Reuters) – Lags in New Zealand’s official economic data are creating a fog for policy makers that recently forced them to veer off course and cut interest rates a whole year earlier than projected, badly wrong footing financial markets.

Years of tight funding by successive governments have left statisticians struggling to keep up with a rapidly changing economy, and nowhere more so than with inflation.

The more than two-decade old system they use is not able to calculate monthly data, making the country rare among developed nations in reporting consumer price indexes (CPI) quarterly, rather than monthly. This makes it harder for the Reserve Bank of New Zealand (RBNZ) to spot turning points in a timely manner.

“We are behind in terms of most advanced economies,” Karen Silk, RBNZ Assistant Governor, told Reuters in an interview. “Monthly CPI…(it) would be delightful to get that.”

As recently as May, the central bank was seriously considering whether it needed to hike rates further to bring inflation to heel. By its next meeting in early July, private business surveys and card spending data from banks had made it more confident cost pressures were easing.

It had to wait another week for the official CPI report for the second quarter, which showed inflation slowing faster than most predicted.

By August, the outlook had swung 180 degrees and it cut rates a quarter point to 5.25%, flagging a lot more to come.

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

Stats NZ, the official data bureau, notes it is within the International Monetary Fund’s 90-day guideline.

VOLATILE MARKETS

While only a small economy of 5.3 million people, the New Zealand dollar is widely traded and investors globally follow its markets. As a result, the RBNZ’s sudden turn last month sliced a whole cent off the currency and sent bond prices surging.

Even the size of the island’s population is in doubt as the government did away with paper departure cards in 2018, making the data less reliable and regularly revised. Stats NZ says COVID-19 had affected their modelling and that they were working to fix this.

This is made more important given the role migration has played in this economic cycle.

Andrew Lilley, chief rates strategist at Barrenjoey in Sydney, said statistics departments often had tight budgets as data was usually a low priority politically.

“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,” Lilley said.

“If people knew this, they might be more willing to pay for good data collection and good statistics.”

Funding of the bureau has jumped around 60% since 2020 to NZ$258 million ($160.76 million) to deal with new initiatives and cost pressure but took a hit this year as the government cut spending to reduce the budget deficit.

“There is always a case to increase funding to do more,” said statistics minister Andrew Bayly. He added improving economic datasets was one of his priorities.

The system that Stats NZ currently uses to produce CPI was built more than 20 years ago where either someone went to stores to collect data or retailers were sent surveys. An improved system is being designed but completion remains some way off, Stats NZ said.

Economists use several methods to get a better read on where money is and isn’t being spent, including internal bank card data.

ANZ Bank recently added extra questions to its business outlook survey to better gauge conditions.

Sharon Zollner, chief economist at ANZ Bank, said while more data was always better, there is a risk that monthly CPI could be volatile whereas quarterly figures can cut through that noise.

Stats NZ has worked to improve data, releasing selected indexes monthly that equate to roughly 45% of the CPI and include the more volatile components.

In 2019, it started a monthly jobs indicator. 

Jason Attewell, general manager of economic and environmental insights at Stats NZ, said there were current constraints to getting new systems up and running or speeding up data publications.

“Stats does pretty well punching above our weight as a small, relatively speaking, national statistical office,” he said, noting they produce more than 250 releases each year.

Grant Williamson, an investment advisor at Christchurch’s Hamilton Hindin Green, said a monthly CPI with less lag would help. 

“A little bit of money spent having more up to date data would be beneficial for everyone, including, obviously, the Reserve Bank,” he said. “Having more up to date data could influence (investment) decision making on time a little.”

($1 = 1.6049 New Zealand dollars)