Photo: RNZ / Rebekah Parsons-King
By Gyles Beckford
Inflation has slowed to a three-year low, with the consumer price index (CPI) rising 0.4 percent in the three months ended June.
The annual rate slowed to 3.3 percent from 4 percent, the lowest since June 2021.
But it remains outside of the Reserve Bank's target band, dampening hopes of an early cut to interest rates.
The biggest contributors to the quarterly result were higher insurance, rents, rates and energy costs, which offset cheaper accommodation, recreational services and some electronic equipment.
The rise in non-tradable items - core domestic services - was 0.9 percent for the quarter, compared to a fall of 0.5 percent for imported goods and services.
"Insurance prices increased 14 percent annually to June 2024 - nearly double what we saw 15 years ago in June 2009, which was the previous highest peak in the series," senior manager of prices Nicola Growden said.
On an annual basis, inflation household costs rose 4.4 percent, miscellaneous costs such as insurance were up 7 percent, and alcohol and tobacco up 6.9 percent.
However, the sharp decrease in food prices over the year has been a key brake on local inflation.
Various measures of underlying inflation gave differing readings, depending on what was omitted, with some as low as 3 percent and others as high as 3.8 percent.
Closer to RBNZ target
The Reserve Bank (RBNZ) expected inflation to fall back into its 1-3 percent target zone this year, and when it is convinced it will stay there, only then will rate cuts begin.
In its latest monetary review the RBNZ appeared to soften its stance, acknowledging inflation pressures and expectations were easing in the face of a weakening economy, but interest rates would need to stay "restrictive" and any cuts would depend on the economic data.
Various measures of underlying inflation gave differing readings, depending on what was omitted, with some as low as 3 percent and others as high as 3.8 percent.
"Stripping out some of these cost increases suggests that annual underlying CPI inflation is already around below 3 percent, and it looks set to continue to cool," ASB senior economist Mark Smith said.
He said there were clear signs inflation was slowing with fewer items rising in price and a reasonable level of of discounting .
The next key numbers for the RBNZ will be employment and wages numbers in early August, with the central bank looking for an easing in labour costs and signs of more slack in the market.
"We've seen quite a big shift in the demand for labour but also the supply with the migration boom so that's pointing to weaker wage growth, which is helpful for the inflation outlook," Kiwibank chief economist Jarrod Kerr said.
He said the RBNZ had done enough in the fight against inflation although an August cut was too optimistic.
"Our call is that they'll cut rates in November which is a year ahead of what they said they were going to do, and I think they'll see this quarter's CPI report which comes out in mid-October as being a catalyst to cut."
The soft inflation numbers had economists quickly changing their rate cut calls, with an Australian based forecaster David Bassanesse of Betashares picking August, ANZ and Westpac shifting to November from February, and the Institute of Economic Research moving to February from May.
Financial markets are pricing in cuts in October and November.
Kiwibank's Kerr said rate cuts would not be an instant shot in the arm for the economy, with many households caught on higher fixed rates but they would help lift sentiment.
"Knowing that interest rates are falling this year and will fall quite sharply next year will boost confidence."
