Growth threat as inflation cools

<p>Kia ora,</p><p>Welcome to Wednesday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.</p><p>I'm David Chaston and this is the international edition from Interest.co.nz.</p><p>Today we lead with news inflation may be transitioning lower, but investors seem uncertain what that will do to the level of economic activity</p><p>But first up today, there was another <a href="https://www.globaldairytrade.info/en/product-results/" target="_blank"><strong>dairy auction</strong></a> this morning, and not especially notable. Prices dipped -0.1% in USD terms. Only cheddar cheese showed any life, up +4.0%. The rest of the components moved very little. For example the core WMP price was up a mere +0.1% and SMP was down -0.3%. However even though these prices were little-changed they were undermined by a rising NZD. In local currency, prices fell -2.9% from the prior event. That takes them, in local currency terms, down to the lowest they have been since February 2021. Not helpful.</p><p>The <a href="https://www.newyorkfed.org/medialibrary/media/survey/empire/empire2023/esms_2023_01.pdf?la=en" target="_blank"><strong>New York state factory index</strong></a> turned in a shocker of a result, falling hard. In fact (apart from the pandemic halt), it was their weakest result since the depths of the GFC. Apart from lower inflationary pressures, there are no positive indications here.</p><p>In Canada, inflation is easing too. <a href="https://www150.statcan.gc.ca/n1/daily-quotidien/230117/dq230117a-eng.htm?HPA=1" target="_blank"><strong>Their December CPI</strong></a> slipped to 6.3%, the least since February and below market expectations of 6.4%, compared to the 6.8% in November and further declining from the 1983-high of 8.1% reached in June. Lower petrol prices drove this latest result. Will it be enough for the Bank of Canada to ease off its rate hikes? We will know when they next meet on Thursday next week.</p><p>Meanwhile, <a href="https://www.cmhc-schl.gc.ca/en/professionals/hou