New Zealand inflation slows to lowest rate since early 2021
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New Zealand's central bank began an easing cycle in August with a 25 basis-point cut to the official cash rate.
PHOTO: REUTERS
New Zealand’s annual inflation rate fell sharply in the third quarter, returning to the central bank’s target band for the first time in more than three years.
The rate fell to 2.2 per cent from 3.3 per cent in the second quarter, said Statistics New Zealand on Oct 16 in Wellington. The result matched economists’ expectations, while the Reserve Bank (RBNZ) had forecast 2.3 per cent. Consumer prices advanced 0.6 per cent from three months earlier, less than the 0.7 per cent estimate of economists.
RBNZ began an easing cycle in August with a 25 basis-point cut to the official cash rate (OCR) and stepped up the pace last week, lowering it by 50 points to 4.75 per cent. With inflation slowing markedly and the economy likely back in recession, policymakers are expected to deliver another big cut at their final meeting of the year on Nov 27.
“Pricing pressures have cooled appreciably and there is the risk of inflation settling below 2 per cent,” said senior economist Mark Smith from ASB Bank in Auckland. “A 50 basis-point cut in November, followed by a sequence of 25-point cuts and a 3.25 per cent OCR endpoint is our base case scenario, but risks are tilted to more front-loaded policy easing.”
Domestic prices
RBNZ aims to keep inflation around the 2 per cent midpoint of its 1 per cent to 3 per cent target band. Inflation, which peaked at 7.3 per cent in 2022, was last inside the band in the first quarter of 2021.
Much of the decline in the annual rate has been driven by imported or so-called tradables prices. They fell 1.6 per cent from a year earlier, the first annual decline since late 2020.
Annual non-tradables inflation, a closely watched indicator of domestic price pressures, slowed to 4.9 per cent in the third quarter, from 5.4 per cent in the second, the Oct 16 report showed. RBNZ tipped 5.1 per cent in its August projections.
Rents and council rates were the largest contributors to the annual inflation rate, the statistics agency said. Insurance costs jumped 12.9 per cent in the year.
Senior economist Satish Ranchhod from Westpac in Auckland said: “Domestic inflation is still elevated, and not just because of items like council rates. That ‘stickiness’ in domestic prices will be important for how far and fast inflation eases, especially with interest rates now moving down.” BLOOMBERG
