Forecasts show easing driven by lower fuel prices
New Zealand’s annual inflation rate is expected to drop below 3% for the first time since 2021, with forecasts from Westpac, Kiwibank, and ASB suggesting a range of 2.2% to 2.3% for the September quarter.
This decline is driven by lower fuel prices, weaker demand for imported goods, and easing domestic pressures.
Westpac senior economist Satish Ranchhod (pictured above left) anticipates inflation to settle at 2.2%, with consumer prices rising by 0.7% over the quarter. Ranchhod highlighted the fall in fuel prices as a major factor.
“Petrol prices have trended down over the past few months and are estimated to have fallen 6.5%,” he said.
Tradable prices drive disinflation
Imported goods continued to lead the charge in bringing inflation down, with tradables inflation expected to enter negative territory.
According to Kiwibank economist Mary Jo Vergara (pictured above centre), imported inflation has played a key role in bringing headline inflation back into the Reserve Bank’s (RBNZ) 1-3% target band.
“A fast deceleration in imported prices has done most of the hard yards in bringing down headline inflation from the 7.3% peak back to the 2% target,” Vergara said.
ASB chief economist Nick Tuffley (pictured above right) also anticipates a fall in tradable inflation by 1.6%, citing reduced fuel and vehicle prices as primary contributors.
Non-tradables inflation remains elevated
Despite the overall decline, non-tradables inflation, driven by domestic factors like council rates and insurance costs, continues to run high.
Westpac estimates non-tradables inflation to reach 5% for the quarter, a slight drop from 5.4% in June.
Kiwibank warned of continued strength in rental inflation due to high migration, while ASB pointed to rising local authority rates and insurance premiums as key drivers of non-tradables inflation.
However, all three forecasts expected this pressure to ease further into 2025, with non-tradables inflation likely falling below 3%.
RBNZ braces for core inflation easing
Core inflation, which strips out volatile components like food and fuel, is also projected to trend lower.
Westpac estimates inflation excluding food, fuel, and energy costs will ease to 3.2% from 3.4%, while Kiwibank and ASB expect similar reductions.
ASB’s Tuffley noted that signs of cooling are already evident: "Core inflation measures should also show easing,” and predicted further cuts to the OCR by early 2025.
Outlook: Sub-2% inflation in 2025
Looking ahead, all three forecasts suggested that inflation could fall below 2% by early 2025.
Westpac pointed to ongoing weakness in tradable prices and easing domestic pressures, while ASB expected headline inflation to remain low, but warned that without further cuts to the OCR, inflation could settle below RBNZ’s target.
“Cooling non-tradable inflation increases our confidence CPI inflation will remain low,” Tuffley said, adding that another 50bps OCR cut in November could be necessary to maintain momentum.
For more information, read the CPI preview from Westpac, ASB, and Kiwibank.
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