Rate cuts possible by November
Kiwi inflation continued to moderate as the headline rate fell to 3.3% from 4% in the June quarter.
“Today’s inflation print came out below the RBNZ's forecast, again,” said Kiwibank’s Jarrod Kerr, Mary Jo Vergara, and Sabrina Delgado (pictured above, from left to right).
This deceleration brings the rate closer to the Reserve Bank’s (RBNZ) target band of 1-3%.
Core inflation shows improvement
Even more promising is the significant cooling in underlying consumer price growth.
Stripping out volatile food and energy prices, core inflation slowed from 4.1% to 3.4%.
“That’s a decent move lower,” the Kiwibank economists said, adding confidence that inflation is on track to fall below 3% by the September quarter.
Domestic inflation still high
However, domestic inflation remains stubbornly high at 5.4%, above forecasts.
Rents have surged to 4.8% due to the migration boom, insurance premiums have spiked by 14%, and council rates have increased by 9.6%.
“Whether you own or rent, you’re hurting,” the economists said, highlighting the triple whammy of price hikes felt by most households.
Imported inflation eases
Imported inflation has significantly eased, down to just 0.3% from 1.6% last quarter and a hefty peak of 8.7%.
“Imported deflation continues to do most of the work in bringing down the headline rate,” the Kiwibank economists said.
Despite this, the persistence of domestic inflation suggests ongoing challenges.
Kiwibank on future outlook
The Kiwibank economists predict inflation will fall below 3% in the current quarter and that RBNZ’s 2% target will be achieved in 2025. Rate relief may be on the horizon, potentially as early as November.
“We are sticking with the first cut to come in November, for now,” they said, with prospects of an even earlier cut rising depending on upcoming data.
Market reactions
Following a dovish tone from RBNZ, wholesale interest rates have shunted lower, with market pricing indicating potential rate cuts by November.
The Kiwi dollar has also traded slightly higher following the release of the inflation data.
The path for inflation is closely tied to future policy actions.
“The path for inflation is the path for policy,” the economists said.
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