KEY POINTS:
The biggest monthly spend-up on imports ever recorded resulted in New Zealand's second-worst monthly trade deficit, Statistics New Zealand (SNZ) said today.
During October, New Zealanders lashed out $56 million on mobile phones alone.
The October deficit came to $1.167 billion - about double what economists had predicted.
It was driven by a massive spending spree on imports as New Zealanders took advantage of the resurgent New Zealand dollar.
Imports jumped 16 per cent to $3.9 billion in the month, including the importation of aircraft valued at $227 million.
The October year trade deficit swelled to $6.448 billion against a forecast of $5.9b. The annual deficit compares to $6.128 billion in the year to October 2005 and augurs badly for the forecast improvement in New Zealand's chronic current account deficit - equal to nearly 10 per cent of GDP.
Exports rose 10.5 per cent to $2.7b with dairy performing strongly although SNZ said the trend indicated the growth over the previous 15 months was now easing.
The increase in the value of imports, compared with October 2005, was spread across most commodities. Electrical machinery and equipment, including cellphones, contributed most to the rise.
Goldman Sachs JBWere economist Shamubeel Eaqub said the Reserve Bank remained in a difficult position, with "cheap" imports directed at the domestic economy and signs of a failed recovery in the export sector.
Bank governor Alan Bollard has threatened to hike interest rates again and is due to review rates again on December 7. However, another hike would cause the New Zealand dollar to spike higher and would exacerbate the trade problem.
"On balance, the data poses no catalysts for the RB but it doesn't provide any comfort either," Mr Eaqub said.
"Sustained consumer demand for imports reflects resilience of the consumer sector but this should be seen in the context of slowing capital imports and accumulating signs of a failed recovery in exports.
"The policy environment remains difficult for the RB, but we believe the prudent course of policy is to hold the OCR (Official Cash Rate) steady at 7.25 per cent in the near term."
Goldman Sachs expected Dr Bollard to commence policy easing in September 2007.
The New Zealand dollar eased to US66.82c from its US66.96c opening and yesterday's US67.13c close.
UBS economist Robin Clements said while exports were worse than expected, the damage was mostly done by imports.
"There were aircraft in there, but we're still bringing in plenty of imports so domestic demand is still there.
"Mixed messages - but at the end of the day it's bad for the currency'."
- NZPA
