Inflation nears target, cuts possible
The June quarter inflation report is due next Wednesday, and Kiwibank economist Mary Jo Vergara (pictured above) anticipates a 0.5% rise in consumer prices over the quarter, a slight slowdown from the 0.6% increase at the beginning of the year.
“We see inflation decelerating to 3.4% from 4% – the lowest in three years,” Vergara said.
RBNZ’s expectations and risks
Kiwibank’s estimate differs from the Reserve Bank’s (RBNZ) May forecasts, which predicted a 0.6% quarterly rise and a 3.6% annual rate.
Vergara highlighted softer monthly price data, indicating downside risk to the RBNZ’s projections.
“However, the surprise is likely to come on the imported side,” she said.
Imported inflation trends
RBNZ expects tradables inflation to increase by 0.3% over the quarter, with the annual rate falling to 1.1% from 1.6%. But recent data shows a decline in airfares and petrol prices, suggesting a potential drop in transport group costs.
“Both international and domestic airfares declined over the quarter (3.3% and 10%, respectively),” Vergara said.
Additionally, food prices rose just 0.2%, and retail prices are under pressure due to high inventory levels.
Slowdown in home construction costs
Domestic inflation, which the RBNZ can influence, shows varied trends.
Home construction costs have significantly dropped, with the March quarter showing a steep fall to 3.3% year-on-year.
“It's a far cry from the 18.3% peak recorded in 2022,” Vergara said.
Challenges with rental inflation
Despite improvements in some areas, other components of non-tradables inflation, like rental inflation, are rising.
“The rise in rental inflation is a particular frustration as it alone makes up 9% of the CPI," Vergara said.
The surge in migration continues to drive these increases, Kiwibank reported.
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