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photo: RNZ/Rebekah Parsons-King
Giles Beckford
Inflation has slowed to its lowest level in three years, with the consumer price index (CPI) rising 0.4% in the three months to June.
The annual rate slowed to 3.3% from 4%, the lowest level since June 2021.
But it remained outside the central bank’s target range, dampening hopes for an early rate cut.
The biggest contributors to the quarterly results were higher insurance, rent, tax rates and energy costs, which offset cheaper prices on accommodation, entertainment services and some electronic devices.
Non-tradable goods (core domestic services) rose 0.9% in the quarter, while imported goods and services fell 0.5%.
Nicola Growden, senior manager of prices, said: “Insurance prices are set to rise 14% per annum by June 2024 – almost double the rate 15 years ago (June 2009), which was the previous highest peak in the series.”
On an annual basis, inflation caused household costs to rise by 4.4%, insurance and other miscellaneous expenses to rise by 7%, and tobacco and alcohol costs to rise by 6.9%.
However, the sharp drop in food prices this year has become a key factor in curbing local inflation.
Depending on what is omitted, various underlying inflation measures give different readings, from as low as 3% to as high as 3.8%.
Closer to the RBNZ target
The Reserve Bank of New Zealand (RBNZ) expects inflation to fall back into its 1-3% target range this year and will only start cutting interest rates once it is confident that inflation will remain in that range.
In its Latest Currency Reviews The Reserve Bank of New Zealand appeared to soften its stance, acknowledging that inflation pressures and expectations were easing amid a weak economy, but that interest rates needed to remain “restrictive” and any rate cut would depend on economic data.
Depending on what is omitted, various underlying inflation measures give different readings, from as low as 3% to as high as 3.8%.
“Taking out some of the cost increases means that annual underlying CPI inflation is already below 3 per cent and looks set to continue to cool,” said ASB senior economist Mark Smith.
He said there were clear signs that inflation was slowing, with fewer items seeing price increases and discounts at reasonable levels.
The next key data from the RBNZ will be employment and wage data for early August, with the central bank hoping to see some decline in labour costs and more signs of weakness in the market.
“With the immigration boom we’re seeing a big shift in both labour demand and labour supply, which means wage growth will slow, which is helpful for the inflation outlook,” Kiwibank chief economist Jarrod Kerr said.
He said the RBNZ had done enough to fight inflation, even though its August rate cut was overly optimistic.
“We expect the central bank to cut rates in November, a year earlier than they have previously said they would, and I think they will look to the CPI report for the current quarter, which is due in mid-October, as a catalyst for a rate cut.”
The weak inflation data led economists to quickly change their rate cut forecasts, with Betashares Australia forecaster David Bassanesse changing his forecast for a rate cut to August from August, ANZ and Westpac changing their forecasts to November from February, and the Institute of Economics changing its forecast to February from May.
Financial markets are pricing in rate cuts in October and November.
Kiwibank’s Kerr said the rate cut would not immediately stimulate the economy as many households were still on higher fixed rates, but it would help boost sentiment.
“Knowing that interest rates are coming down this year and will come down substantially next year will boost confidence.”
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