The annual inflation rate fell to 6% from 6.7% in the first quarter, Statistics New Zealand said Wednesday in Wellington. Economists expected 5.9% while the Reserve Bank had forecast 6.1%. Consumer prices advanced 1.1% from three months earlier, more than the 0.9% median estimate.
The RBNZ has said it’s done raising rates after 525 basis points of tightening since October 2021, the most aggressive since the Official Cash Rate was introduced in 1999. While the economy has stalled, today’s data suggest it will be some time before inflation returns to the bank’s 1-3% target range.
“Domestic inflation remains high, sticky and is lagging the pullback we’ve seen in recent pricing surveys,” said Kim Mundy, senior economist at ASB Bank in Auckland. “Sticky non-tradable inflation will keep the RBNZ on alert and of the view that monetary policy will need to remain restrictive for the foreseeable future, but we expect the RBNZ to remain on hold.”
Non-tradables inflation, a closely watched indicator of domestic price pressures, eased to 6.6% from 6.8% but was still higher than the RBNZ’s projection of 6.3%.
The New Zealand dollar rose more than a quarter of a US cent before paring gains. It bought 62.98 cents at 12:05pm in Wellington from 62.86 cents beforehand. Investors increased bets on another RBNZ rate increase this year, though a 25-point move is not fully priced, swaps data show.
Fuel, food
Eight of the 11 main groups in the consumer price index basket increased in the quarter. The main drivers were food, residential construction costs and rents, the statistics agency said.
Gasoline prices fell 1.5% in the quarter and were down 15% for the year, but food prices climbed 12.3% from a year earlier, the most since 1987. Prices for the construction of new houses were up 1.1% for the quarter and 7.8% for the year.
“All up, these data show that risks to the inflation outlook remain firmly to the upside,” said Miles Workman, senior economist at ANZ Bank New Zealand in Wellington. “While annual headline inflation fell sharply, which is helpful for inflation expectations, the details suggest persistence in non-tradables inflation, with associated potential medium-term challenges.”
Both ANZ and Westpac still expect one further rate hike from the RBNZ this year, even though the central bank has said the cash rate has peaked at 5.5%.
The RBNZ’s latest projections in May suggest it will consider a rate cut in the second half of 2024, although some economists are tipping it could act earlier as demand slows.
“The stickiness of underlying inflation does raise the risk that the RBNZ will delay rate cuts,” said Abhijit Surya, an economist at Capital Economics in Singapore who currently expects a cut in the first quarter of 2024.