Cheese prices are falling fast.
To me that seems like something to cheer about. It’s a great reminder that inflation is finally easing here and around the world.
There are plenty of deeper, more economically robust ways to illustrate the good news about inflation this week.
In the US, bond yields have slumped and equity markets have surged. The top-line inflation number in the US landed below exceptions at 3.2 per cent last week.
Oil prices have slumped to their lowest levels since July.
Even the UK, which has been an economic basket case for the past 18 months, managed to surprise on the upside with an inflation rate of 4.6 per cent.
That’s nominally better than us. But it might not be really. It may just be a symptom of the lag on our consumer price data.
We won’t see another full Consumer Price Inflation number until February. And economists are picking it will also drop from the September 30 figure of 5.6 per cent, to something with a four in front of it.
Stats NZ did release some partial consumer price indicators here last week along with its regular monthly food price index, and that surprised on the upside too.
There was some great news about airfares, with domestic and international prices down 9.5 per cent and 7.4 per cent respectively - in just one month.
It’s almost as if the world is returning to normal after some wild and exceptional event disrupted everything - who would have thought.
As far as food inflation goes, Stats NZ highlighted price falls for cheese, white bread and muesli bars leading the charge.
I don’t know what’s going on in muesli markets and as a middle-aged guy I’m not supposed to eat white bread anymore - so for me, cheese was the hero. I love travel but as a typical dairy-loving Kiwi it’s all about the price of cheese.
In fact, over the years I’ve noticed cheese is the product that causes the most media fuss when the price spikes.
I guess it’s because we feel like we produce so much that it should be cheap. We grew up on cheap cheese.
Cheese on toast is a childhood staple.
Cheese is an inelastic product in New Zealand. That means that Kiwis keep eating it even when the price rises, even though they could cut back or swap to other proteins.
Economists talk about price elasticity as a measure of demand for a product to hold up in the face of price rises.
Things like avocados and mangos are fairly elastic - we buy them when supply is plentiful and prices are good.
Booze, tobacco and methamphetamine are some good examples of inelastic products - for some reason, people can’t seem to stop buying them regardless of the price.
I’m not saying Kiwis are addicted to cheese but it seems the need to consume a 1kg block of Mild, Colby or Tasty is embedded in our cultural make-up.
For the record, retail cheese prices actually peaked in January this year, according to Stats NZ. They’ve slid by 26 per cent since then, with a decent 9 per cent slump in October alone.
Of those following the fortunes of the commodity price of dairy exports, this won’t be a surprise. The retail price is tracking down, with a delay of around six to nine months.
So apologies to any dairy farmers reading this. I fully appreciate how tough dairy commodity prices are making life.
I agree that on balance, in the long run, higher dairy prices are better for New Zealand.
But at this point in an inflationary economic cycle, the cheese price data comes as a relief.
It’s clear now that we‘re not headed back to the bad old days of the 1970s stagflation, as some had feared.
Monetary policy is working as it is supposed to. In fact, it has been deployed early and sensibly and looks set to do the job on inflation without pushing unemployment into socially damaging territory.
They can be a bit more confident about that in the US at this point. Here we still have another six months or so to go and there is time enough for events to cause fresh problems and delays.
No one is quite prepared to call victory in the inflation fight just yet, even though all the evidence suggests it has already been won.
Regardless, don’t think there’s going to be a celebratory VE day for the war on inflation.
By the time it gets back into the officially mandated 1-3 per cent target range, we’ll all have moved on to a fresh set of economic worries.
Consumers seldom devote much energy to cheering about low inflation. The cost of living always feels high. Prices were so stable between 2012 and 2021 that central banks spent most of their time worrying about deflation.
But you’ll still find plenty of media reports complaining about prices during that era - not least because wages weren’t rising through those years either.
By some measures, wage growth has kept up with or exceeded inflation in the past 18 months.
It’s the bit that still bothers hawkish economists. Non-tradeable, the domestic inflation pressures can - like the last few kilos on a crash diet - be the hardest to shift.
But if we want a barometer of where inflation (and interest rates) are headed, equity markets are going to oblige.
In the past week, Wall Street investors have decided the odds of the US Federal Reserve lifting interest rates again have reduced to near zero.
In New Zealand, the consensus is that we’re also done with hikes, with one of the last economists previously tipping another rise in February, ANZ, changing its call after last week’s data.
ANZ still sees some risk but says on balance the odds suggest that’s it - we’re done.