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Inflation pressures are showing more signs of easing, but consumers still look reluctant to spend to any extent.
A slew of Stats NZ data showed food prices rose 0.2 percent in August on July, but the annual rate eased to 0.4 percent.
Higher prices for eating out, takeaways, and groceries were the main drivers behind the annual gain of 3.6 percent, while fruit and vegetable prices fell 12.2 percent .
Among groceries olive oil, butter and chocolate were notable price rises.
"The average price of a 250g block of chocolate has increased 20 percent since this time last year," consumer prices manager James Mitchell said.
World olive oil supplies and prices have been affected by bad weather in Europe, while chocolate prices have surged on the back of disease, drought, and reduced supplies.
However, transport costs fell in August with petrol pump prices falling further and airfares also cheaper, while rents continued to edge higher.
The items cover just under half of the consumer price index and suggest inflation is slowing further.
ASB senior economist Mark Smith said the partial numbers pointed to inflation of 0.3 percent for the month.
"The moderating annual inflation impulse increases our confidence that annual CPI inflation will fall below 2.5 percent in the third quarter."
He expected the Reserve Bank to continue cutting the official cash rate, by 25 basis points in its next two meetings, to 4.75 percent.
"Actual OCR moves will be heavily conditional on the inflation, labour market and wider economic outlook," Smith said.
Cautious consumers
But other Stats NZ data showed tepid consumer activity, despite the first rise in retail sales using electronic cards in seven months.
Sales rose 0.2 percent for the month, but were still 2.9 percent lower than a year ago.
Spending on durable goods, such as furniture and electronics, fuel, and clothing increased, but hospitality and vehicle related sales were lower.
Westpac senior economist Satish Ranchhod said the rise was modest given tax cuts had come into effect.
"We expected that tax cuts would support a larger rise in spending. However, New Zealand households are yet to throw their wallets open."
He said high living costs and interest rates continued to be headwinds and it would take some time before recent falls in interest rates filtered through to households.
"At the same time, the softening labour market means many households are still cautious about their spending."
