More disinflation pressure is expected in the coming months
After more than three years, inflation has finally returned to the Reserve Bank of New Zealand’s (RBNZ) target band and the crisis in the cost-of-living is forecast to come to an end, said economists from Kiwibank.
According to a report by chief economist Jarrod Kerr, senior economist Mary Jo Vergara, and economist Sabrina Delgado (pictured above, left to right), the inflation rate has fallen to 2.2%m, which was the midpoint of the RBNZ’s 1-3% target band.
Notably, their report found that there was a lesser number of items in the CPI basket over the September quarter, which had recorded an increase in price while there were more items that either had no changes in its pricing or had declined. This was in contrast to what was recorded at the same time from the previous year, which saw a large number of basket recorded price declines.
The economists said that this served as a sign towards inflation pressures finally seeing a generalised cooldown.
“Stripping out volatile food and energy prices, underlying price pressures lifted 1%. Annually, core inflation is now just skimming the top-end of the RBNZ’s 1-3% target band at 3.1%. It’s a very welcome move confirming the underlying trend for inflation is down. And even better – moving closer to being below 3% in the coming months,” the economists said.
While the report for September showed desirable changes, the economists noted that there were still a few items that had recorded increases, with council rates increasing to 12.2% and rents staying at 4.5%. Following the reintroduction of the $5 prescription payment, pharmaceutical products were up at 17%.
The report also found a decline in imported prices as well as the slowed pace of domestic inflation, with non-tradables price growth slowing down to 4.9%. Despite domestic inflation being at 3%, it was sitting below 5% for the first time since September 2021.
“There is lingering strength in homegrown inflation, but underlying domestic price pressures are clearly weakening. And we still have more deflationary pressure in the pipeline as the economy runs below its productive capacity,” the economists said.
“The light at the end of the tunnel is burning brighter. Cost pressures are easing. Great news for businesses and households, and interest rate relief is coming thick and fast.”
The economists also expect to see another 50bp cute in rates sometime in November while policy settings continue to be restrictive.
