Inflation returns to the RBNZ's target range, signaling economic stabilisation
BNZ’s November 2024 Market Snapshot highlighted New Zealand’s return to RBNZ’s inflation target range, a surge in business confidence, and the global economic shifts shaping investment strategies, as easing monetary policies signal cautious optimism for growth.
Inflation returns to target as OCR cuts continue
New Zealand’s inflation rate has fallen back into the Reserve Bank’s (RBNZ) target range of 1-3%, with consumer prices rising just 0.6% in Q3 for an annual increase of 2.2%. This marks the lowest rate in over three years, driven by a 1.6% drop in tradable goods prices.
However, non-tradable inflation remains elevated, with local authority rates rising 12% annually.
RBNZ Governor Adrian Orr described this as a transition to “low and stable inflation.”
Speaking in Washington, DC, Orr indicated interest rates would become “less restrictive” to support growth. Following a 0.50% OCR cut in September, which brought rates to 4.75%, markets now anticipate another cut in the Nov. 27 Monetary Policy Statement.
Business confidence on the rise
RBNZ’s easing measures are boosting sentiment.
The ANZ Business Outlook survey revealed business confidence and activity expectations have climbed to their highest levels since 2014.
“Green shoots in the survey data indicate that the low point in the economic downturn may now be behind us,” said Ryan Gillanders (pictured above), senior investment manager at Harbour Asset Management.
While green shoots suggest the economic downturn is easing, the labour market is expected to loosen further, with unemployment peaking in early 2025.
Global context: US economy resilient amid shifts
Globally, the United States economy grew at an annualised 2.8% in Q3, driven by strong consumer spending. Inflation moderated to 2.1%, near the Federal Reserve’s target.
However, recent shifts following Donald Trump’s presidential election victory signal potential changes, with anticipated policies favoring tariffs, deregulation, and extended tax cuts to boost domestic growth.
Investment strategies in a dynamic market
Large-cap technology stocks have dominated the investment landscape, but recent mixed earnings reports have prompted a broader market performance.
As markets adjust to factors like artificial intelligence investments and US policy shifts, diversification remains essential for managing risk.
Gillanders encouraged investors to maintain well-balanced portfolios across asset classes, sectors, and regions to navigate evolving economic and market conditions effectively.
The November 2024 Market Snapshot is available on the BNZ Debrief blog.
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