New Zealand May Go Into Deflation; Wellington Set To Have A 'Movie Star' Economy

The New Zealand economy may be heading into a deflation for the first time since more than 10 years. The Bank of New Zealand announced the possibility of a six-month deflation period, following weak oil prices and global overcapacity.

According to BNZ economists, the deflation period may increase the potential of another interest rate hike into 2016. They predicted that the consumer price index will decline 0.2 percent in the December quarter and is expected to fall 0.3 percent during the first three months of 2015, New Zealand Herald reported.

New Zealand has not seen more than a quarter of deflation since the 1930s Great Depression. Stephen Toplis, BNZ head of research, said deflation in New Zealand during the current cycle is operating at or above capacity with the housing market rising. New Zealand consumer spending has shown no inclination to stop.

Toplis explained that in a normal situation, talking about deflation would cause worries since there would be plummeting prices. However, he said there was no evidence of that happening in New Zealand since Kiwis have access to goods at lower prices. Toplis believes spending will continue since there was no proof of pressure on the general consumer price level.

BNZ's deflation forecast is in contrast with the Reserve Bank of New Zealand's forecasts when it said that consumer price index will increase 0.1 percent in the fourth quarter of 2014 and 0.4 percent in the first quarter of 2015.

Meanwhile, Wellington is set to have a "movie star" economy in 2015. Stuff.co reported that Wellington had reinforced its status as the business confidence capital in ANZ's quarterly Business Micro Scope survey of small businesses. The city has extended its national lead to the highest level any region has seen since data was recorded in 2007.

Fred Ohlsson, ANZ managing director for Retail and Business Banking, said the recession during the Asian financial crisis meant the economy is "well beyond recovery." The high business confidence in Wellington, including its smart and creative industries, would help make the city into a "movie star" economy of 2015.

Grow Wellington Chief Executive Gerard Quinn remarked that the term was suited for Wellington due to its recent success in the film industry. Data from Statistics New Zealand showed that Wellington's revenue from the film sector was $828 million in 2012. It is higher than the $495 million it generated in 2011.

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