Defueling the economy

Defueling the economy

Friday 4 May, 2018

Spending growth through Paymark has slowed in recent weeks. Annual growth between April 2017 and April 2018

was a low 2.9%. In seasonally adjusted terms, underlying spending declined 1.4% from March 2018.

One contributor was a lower volume of transactions at fuel stations, which in turn lowered spending at fuel stations through Paymark (-0.9% Apr-to-Apr), in spite of petrol prices being higher this year. More generally it is possible that higher petrol prices are having a dampening effect on demand within other sectors but the effect so far in the first four months of 2018 appears to be modest.

A key contributor to the slow April figures appears to be changing holiday patterns. First the Easter period extended into early April, making for a slow start to the month for many merchants. Then the annual growth rate declined to a mere 0.2% in the last week of April in the Auckland/Northland region. A partial offset was provided by increased spending in smaller regions such as Gisborne, Hawkes Bay, Wairarapa and West Coast, suggesting more holidaying occurred during the second week of the school break this year.

The changing dates over Easter between 2017 and 2018 may also have had wider effects on spending as there was a noticeable decline in spending amongst housing-related and accommodation merchants in April, following surges in activity in March.

Over the month in total, the annual underlying growth rate was only 1.8% in Auckland/Northland, in sharp contrast to high spending growth in Marlborough (13.3%), which includes Kaikoura in the Paymark statistics, Wanganui (+9.3%) and Palmerston North (+7.7%).

Taking the first four months of 2018 together to reduce any potential seasonal effects shows spending up 4.8% on the first four months of 2017, a slip from the 5.0% averaged in both the first and last four months of 2017. Viewed from this perspective, spending growth is modestly lower this year to date. Higher fuel prices are one possible explanation.

The relationship between fuel prices and spending growth is of longer-term interest given the prospect of higher petrol prices, due to higher petrol taxes and possibly also resulting from a continuation of the recent upward oil price trend. Higher pump prices do have the potential to reduce spending elsewhere but Paymark figures in recent years suggest the effect on other merchants of pump increases of the order of 10-20 cents/litre are likely to be modest.

The average petrol price was around ten cents higher in the first four months of 2018 on prices a year earlier.

The most noticeable effect of this price increase has been a lower volume of transactions through service stations and an increase in the average service station transaction value of only 1.5%, well below the 5% pump price rise. Both figures point to higher petrol prices dampening petrol demand, hence reducing any potential budgetary spillover to other sectors.

Another trend of note over the first four months has been a stall in the downward share of non-contactless debit cards for payments. In recent years, the use of credit cards, traditional and contactless, and contactless debit cards has being growing more rapidly that payments with the traditional dip or swipe debit cards. However the flatter payment share trend of late is probably temporary as it fits with the pattern of recent years. Use of the higher fee bearing cards has tended to increase approaching the busy Christmas period and then stabilise, rather than reverting to previous levels, only to repeat the pattern when approaching the next spending season.

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