Annual increases in core retail sales in Auckland have been running around 10 per cent for a year now.
That takes some explaining.
The numbers are not swollen by inflation, that's for sure. At least not by prices for the things retailers sell.
On the contrary.
Nationwide, the annual increase in retail sales (including the automotive sector) was 4.8 per cent but 5.7 per cent when adjusted for price changes - mainly reflecting a 7.7 per cent fall in prices at the pump, leaving motorists with more to spend on other things.
On a core basis the annual increase was 5.4 per cent in nominal terms and 5.2 per cent in real or volume terms.
In all, prices in six of the 15 retail subsectors fell over the year, including a 6.8 per cent fall for electronic and electrical goods.
The consumers price index, which reflects a wider range of prices, rose just 0.4 per cent over the year.
So, if not inflation, did the increase in Aucklanders' spending reflect a surge in their incomes?
Hardly. Not if they work for a living.
We don't have a regional breakdown, but on a nationwide basis average hourly earnings in the September quarter were 2.3 per cent higher than a year earlier.
Add the impact of decent growth in the number of people employed and a small rise in average hours per week and the rise in gross weekly earnings of the household sector as a whole was 5.5 per cent.
Again, that is well shy of an 8.8 per cent rise in Aucklanders' retail spending over the same period.
So can we explain the difference by Auckland's disproportionate share of the population gain from migration?
Not really.
The statisticians tell us the net inflow of permanent and long-term migrants to New Zealand in the year ended September was 61,200, of whom Auckland's share was 28,400 or 46 per cent.
But its share of the population as a whole is 34 per cent.
So Auckland's population gain from net migration is only about a third as large again as its share of the national population would predict, all else being equal.
Add in natural increase (births minus deaths) and Auckland's population growth might explain a 3 per cent rise in retail sales.
The difference between that and an 8.8 per cent rise in retail sales is still a lot more than can be explained by modest per capita pay increases or by price changes.
So that leaves the elephant in the room - Auckland's runaway house price inflation.
There is prima facie evidence here of the wealth effect kicking in.
That is, homeowners going out and spending some of the increase in their housing equity, whether it is realised (when selling one place and buying another) or not (by borrowing against what is purely a paper gain).
QV's house price index has Auckland prices rising at an annual rate of over 24 per cent - the fastest growth since 1994, outstripping even the peak of the mid-2000s boom.
The temptation to spend a few cents in the dollar of such strong increases in housing equity is understandable, especially when actual cash incomes are rising at a pretty sluggish rate.
But the city's retailers would be wise to regard that part of their sales growth as transitory - froth rather than beer.
House prices rising 10 times as fast as the incomes out of which mortgages and rents have to be paid? What is wrong with that picture?
There is already anecdotal evidence the market is coming off the boil.
It needs to.
Auckland's house price-to-income multiple is over nine, up from six four years ago. In the rest of the country house prices average five times income.
The more stretched prices become relative to incomes, the greater the risk of a sharp correction when - and it is when, not if - New Zealand gets sideswiped by some shock from the other 99.8 per cent of the word economy.
While Auckland homeowners have been warmed by a bonfire of would-be first-home buyers' hopes, some icy winds have been gathering strength.
The labour market is weakening. An unemployment rate of 6 per cent and rising does not augur well for wage increases to come.
It is also now higher than in Australia, which should eventually curb the net migration gain.
Meanwhile, for the third fortnightly auction in a row, export dairy prices fell this week. It is the second time this year that a modest rally has proven short-lived.
Whole milk powder prices are 57 per cent below their peak early last year.
When farm incomes take that much of a hit and farmers put way their chequebooks, the effects are felt, with a lag, even in the metropolis.
Another factor which has underpinned consumer spending has been the decline in mortgage rates.
By the end of September you could get a two-year fixed rate mortgage for a full percentage point less than it would have cost a year earlier.
But how much the banks have to pay for the 15 or 16 per cent of their funding they borrow offshore may be set to rise as the US Federal Reserve lifts its equivalent of the official cash rate from the emergency levels it cut to when the global financial crisis hit.
In its financial stability report last week, the Reserve Bank said banks' external funding spreads appeared to have increased by around 40 basis points over the past year.
Debate on this article is now closed.
