Newsroom Pro's 9 things at 9: Deal talks at nitty gritty stage; Inflation up, but not enough for rate hikes; SSC vs Guardians of NZ Super Fund over Orr's salary

The travels of the first dollar invested in the NZ Super Fund. Source: NZ Super Fund

In today's email we have the latest on the coalition negotiations, look at the inflation figures, and review the SSC v Guardians of NZ Super Fund drama.

1. Down to the nitty gritty

Winston Peters held brief and private one-on-one meetings with Bill English and Jacinda Ardern in the Beehive conference room last night, suggesting talks to form a Government of some sort are coming down to the 'devil is in the detail' stage.

Shortly before, Peters emerged from another all-day meeting of the New Zealand First board in Bowen House to say it had completed two days of discussions and board members were heading home.

"We’ve spent a couple of days on very comprehensive discussions and preparations for the party to make a final decision," Peters told reporters in Bowen House shortly after 5pm.

"We’ve got a lot of work done, the board's engagement in terms of that work is complete. We’ve got things to finish off as urgently as we can - sorting out differences of calculations and opinions and trying to make sure we’ve got with both sides a clear understanding so that if we do finalise it, we’ll know that we’ve already got the agreement rather than having to go on and write it again," he said.

He said the party was "98 per cent there" on the respective policy offerings from the two major parties, but there were other issues that would still need to be discussed with English and Ardern before a decision could be made.

"When we think we’ve got the policy wrapped up and every loose end wrapped up, we’ll talk to both sides about what it is that they want and then the discussion will develop from that to take to the NZ First board and caucus."

Peters confirmed the shape of the next government - whether a coalition, a confidence and supply agreement or something else - was still to be confirmed, with all nine "permutations" on the table "right through to the end".

He said it was unlikely any further discussions would take place on Tuesday evening, but he still intended to make a decision by the end of the week - although he added: "Of course that’s in other people’s hands, not mine."

Shortly after 6pm, English was seen leaving the Beehive conference room after around 40 minutes of one-on-one talks with Peters. Ardern then had a meeting with Peters that also lasted around 40 minutes, the Herald reported.

Plenty of things are yet to be agreed by two or three parties, including ministerial positions and governing agreements around supply and confidence or coalition.

Peters stuck to his revised timetable of 'before this Sunday', but it's unclear whether that could mean a deal is done later today or closer to Sunday. Even after Peters has made a decision, he will need to get agreement from the NZ First board, and then potentially either National or the Labour and Green caucuses and executives need to agree.

The discussions may be down to the nitty gritty, but actual decisions needed from dozens of people could still be days away.

2. Inflation above forecast, but not too much

The economy is still trundling along despite all the uncertainty and there were few signs in yesterday's inflation figures to suggest any dramatic changes are necessary any time soon for monetary or fiscal policy.

Statistics New Zealand reported the Consumer Price Index rose 0.5 percent in the September quarter, which was up from no change in the previous quarter. That lifted annual inflation in the September quarter from the same quarter a year ago to 1.9 percent from 1.7 percent.

That was slightly stronger than the consensus forecast from economists of around 0.4 percent for the quarter and 1.8 percent for the year and above the Reserve Bank's forecasts from its August Monetary Policy Statement of 0.2 percent for the quarter and 1.6 percent for the year.

The main inflation culprits were housing and household utility prices and food prices, which rose 1.0 percent and 1.1 percent respectively for the quarter. They were up 3.0 percent for the year and 2.2 percent respectively.

The cost of building new houses rose 5.4 percent for the year, while vegetable prices rose 9.0 percent.

Rents continued to rise everywhere except for Christchurch. Rent inflation nationally for the year was 2.2 percent, with Auckland's rent inflation rate falling to 2.7 percent from 2.9 percent in the June quarter, its lowest rate since the June quarter of 2015.

However, Wellington's rent inflation rose to 3.7 percent from 2.8 percent, which was its highest annual rate since the December quarter of 2008. Canterbury's rents fell 1.9 percent from a year ago and have been falling since June 2016. They were down 2.6 percent from their March 2016 peak.

Despite the higher than expected headline figure, economists were reluctant to forecast any great change in the outlook for the Official Cash Rate, given inflation appears quarantined to housing and seasonal or one-off factors such as petrol and vegetable prices.

The Reserve Bank itself has forecast it will not have to raise interest rates until very late in 2019. Financial markets did not react much, given the one-off nature of much of the change and it being limited mostly to housing.

"While the RBNZ will be relieved to see underlying inflation being around the mid-point of the target band, it is unlikely to put too much weight on the result at this stage," said ASB Chief Economist Nick Tuffley.

"In particular, the RBNZ is likely to remain cautious given the recent weak out-turns in GDP growth around the start of the year. The economy needs to start firing on all cylinders if we are going to see evidence of sustained price pressures," Tuffley said, adding he expected the Reserve Bank to leave the OCR on hold until 2019.

ANZ Senior Economist Phil Borkin was also cautious about reading too much into the higher than expected result.

"With core inflation measures broadly stable, and future inflation signals mixed (especially given a turn in pro-cyclical parts of the economy), we see few implications for the monetary policy outlook," he said.

Westpac Senior Economist Michael Gordon also saw little change in the outlook for interest rates and said he still expected the OCR to remain on hold until late 2019.

"There is little that suggests a risk of inflation breaking higher, particularly with the New Zealand economy seemingly entering a slower growth phase," he said.

To emphasise that there was little change in the underlying inflation outlook, the Reserve Bank published data at 3pm yesterday showing its preferred measure of annual underlying inflation, the sectoral factor model, was unchanged at 1.4 percent.

The only more hawkish view was from BNZ Economist Stephen Toplis, who said the result would bring interest rate hikes sooner than the late 2019 forecast by the Reserve Bank.

"With the labour market tightening, we believe today’s outcome will put more pressure on wages than many care to believe which will, in turn, prop up future inflation," Toplis said.

"So too will the current level of the exchange rate and likely future fiscal easing, no matter the hue of Government," he said.

The inflation figures also reinforced the ongoing effect of Gull's competition around the country. Areas with Gull, including Auckland and the rest of the North Island, saw lower petrol prices than those without Gull, which include Wellington and the South Island.

3. SSC vs Guardians of NZ Super Fund

There was a coda yesterday to Bill English's unhappiness over the Guardians of the NZ Super Fund's decision last year to grant CEO Adrian Orr a 35.6 percent pay increase to $1.129 million.

The State Services Commission released its view on this year's pay increase proposal of 2.7 percent for Orr. It proposed instead that the Guardians award Orr a 1.0 percent increase to $1.141 million.

In the end, Orr got a 2.9 percent increase and the State Services Commisioner Peter Hughes was not happy. He took the unusual step of releasing the correspondence around the decision.

"I do not accept the argument that Crown Entities such as Guardians of New Zealand Superannuation should be able to make decisions free of any public sector oversight or accountability," Hughes said in a statement.

"This is a public agency investing public money for the good of the public. And the Chief Executive's remuneration is paid by taxpayers," he said.

"Crown Entities have a strong element of public service attached to their work and executives should reasonably expect to earn less than in a private sector company."

Orr has run the fund since February 2007 and it has grown over that time from $14 billion to $36 billion. The fund has returned 8.97 percent on average per year before tax over the last 10 years, which is more than the 7.1 percent expected return from a reference portfolio if it had been invested passively. It is also above the 3.3 percent cost of borrowing over that time.

The chart (above) from the NZ Super Fund shows that $1 invested at the inception of the fund in 2003 is now worth over $3.80 and above the $3.30 if the fund had been invested passively (ie without active managers run by Orr). Managers of private funds of that size and performance would be earning significant multiples above the $1.16 million being paid to Orr this year.

4. Milestones

Ended - Mondelez International announced yesterday it would be closing its Cadbury chocolate factory in Dunedin in early 2018, which means various favourite brands of lollies and chocolate will be manufactured offshore. Wellington's family-owned Whittaker's is now New Zealand's most popular brand of chocolate.

Agreed - The Motor Industry Association and the Imported Motor Vehicle Industry Association announced they had signed a memorandum of understanding to cooperate.

Married - US tech billionaire (and New Zealand citizen) Peter Thiel was married at a surprise party over the weekend in Vienna to his long-time boyfriend Matt Danzeisen. (Axios)

5. Number of the day

$10 billion - That's the global revenues of New Zealand's top 200 technology companies, including $7 billion of exports. That makes the industry the third biggest export earner after tourism and dairy. See Tim Murphy's full article on the TIN 100 figures released this morning.

6. Quotes of the day:

NZ First MP Shane Jones before yesterday's caucus and board meetings in Wellington:

"Everyone should be confident. Soon, the monarch butterfly will emerge."

US Senator John McCain while receiving a Liberty Medal in Philadelphia:

"To fear the world we have organized and led for three quarters of a century ... for the sake of some half-baked, spurious nationalism cooked up by people who would rather find scapegoats than solve problems, it's as unpatriotic as an attachment to any other tired dogma of the past that Americans consigned to the ash heap of history."

7. While you were sleeping

North Korea’s deputy U.N. ambassador warned overnight that the situation on the Korean peninsula “has reached the touch-and-go point and a nuclear war may break out any moment.” (AP)

This was was after U.S. Secretary of State Rex Tillerson said that diplomatic efforts aimed at resolving the North Korean crisis “will continue until the first bomb drops.”

Donald Trump used the 2010 death in Afghanistan of Chief of Staff John Kelly's son to attack Barack Obama in comments in a Fox Radio interview overnight. He said reporters should ask Kelly whether Obama had called Kelly about his son. Kelly met with Obama and his wife Michelle at a Memorial Day breakfast for Gold Star families in 2011. Earlier Trump had bragged that he had called more families of killed soldiers than Obama. Kelly has tried to keep his son's death (he stepped on a landmine) out of the public debate. (CNN).

8. Coming up...

The University of Auckland is hosting a panel discussion on political polling from 5pm to 6pm on Thursday at Room 209 of its Humanities Building.

The panel includes Professor Thomas Lumley (Statistics, University of Auckland), Associate Professor Jennifer Curtin (Public Policy Institute, University of Auckland), Stephen Mills (Executive Director, UMR) and Anna Bracewell-Worrall (Digital Producer, Newshub). Details are here.

9. One fun thing

This is beautiful headline writing from The New Yorker:

"Trump doesn't govern like a toddler. He governs like a teen-ager."