Inflation drops below 3% for first time since 2021
New Zealand’s annual inflation rate eased to 2.2% in the September quarter, according to Stats NZ.
This marks the first time inflation has fallen within the Reserve Bank’s (RBNZ) 1-3% target band since March 2021. The drop follows a 3.3% increase in the June quarter, signaling slower price growth.
Rising rent and local rates drive inflation
Higher rent prices were the biggest contributor to inflation, rising 4.5% over the year.
Stats NZ reported that nearly 20% of the 2.2% CPI increase came from rents, with the South Island (excluding Canterbury) seeing the largest regional rent increase at 6.6%.
Council rates also rose sharply by 12.2%, contributing 16% to the annual inflation rate.
Cigarettes and fuel offset inflation pressures
Cigarette and tobacco prices increased by 10%, reflecting the tobacco excise tax increase in January 2024. On the other hand, falling petrol prices – down 8% – helped curb inflation, as did a 17.9% drop in vegetable prices, which offset last year’s spike in food costs.
Quarterly inflation shows modest growth
The CPI rose 0.6% from the June quarter, with council rates accounting for more than half of the increase.
“This is the largest rates increase since 1990,” said Nicola Growden, Stats NZ consumer prices manager.
Rising pharmaceutical costs – driven by the reintroduction of a $5 prescription fee on July 1 – also contributed to the quarterly rise, while petrol prices fell 6.5%, helped by the removal of Auckland’s regional fuel tax.
Inflation trending downward
Economists are optimistic about further easing of inflation pressures.
“The inflation beast is back in its box,” said Kiwibank chief economist Jarrod Kerr (pictured above left).
Although council rates and insurance premiums remain high, the general trend points to price declines across a broader range of goods and services.
Core inflation nears RBNZ target
Core inflation, which excludes volatile items like food and energy, is now 3.1%, skimming the top of the RBNZ’s target range.
“Underlying price pressures are clearly weakening,” said ASB chief economist Nick Tuffley (pictured above right), who expects inflation to hover around 2% over the next year, potentially dipping below it.
RBNZ policy outlook: Rate cuts likely
With inflation easing and the economy cooling, RBNZ is expected to cut interest rates soon.
Economists predict a 50-basis-point cut in November, with the OCR expected to reach 3.25% by early 2025.
However, delays in monetary easing could risk economic scarring and job losses, Tuffley said.
For more information, read the Stats NZ media release and the commentaries from Kiwibank and ASB.
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