Key Facts

  • Annual inflation dropped to 5.6% in the quarter ending September.
  • Inflation is projected to decrease to less than 5% by the end of the year, the lowest level since mid-2021.
  • Indicated by partial price indices from Stats NZ, food prices declined by 0.2% in November due to cheaper fruit and vegetables, but they’re still 6% higher than the previous year.
  • Other selected price indices indicated significant drops in petrol and airfares, which were balanced by increases in alcohol, tobacco, and rents.
  • Westpac senior economist, Satish Ranchhod, has adjusted his last quarter inflation prediction to a 0.3% increase, with an annual rate of 4.5%.
  • Ranchhod however predicts that the Reserve Bank (RBNZ) will not overreact to these changes, and notes that core inflation, especially for domestic prices, remains high.
  • The Reserve Bank of New Zealand (RBNZ) has forecasted a quarterly rise of 0.8% and 5% by the end of the year.
  • ASB senior economist, Mark Smith, believes that no cuts to the official cash rate (OCR) are expected until 2025.

Article Summary

According to recent data from Statistics NZ, annual inflation slowed to 5.6% in the September quarter and is expected to decline to below 5% by year-end, marking it the lowest level since mid-2021. The data also indicated decreases in selected price indices, such as food prices which dropped by 0.2% in November. Despite these decreases, November food prices remained 6% higher than the same time last year.

Other selected indices showed a significant decline in petrol and airfares prices. The decreasing numbers were offset by increases in the cost of alcohol, tobacco, and rents. Collectively, these price indices cover about 45% of the consumer price index (CPI), the primary measure of inflation.

Westpac senior economist, Satish Ranchhod, has revised his inflation forecast for the last quarter of the year to a growth of 0.3%, leading to an annual rate of 4.5%. Despite this adjustment, Ranchhod notes that the Reserve Bank of New Zealand (RBNZ) is unlikely to overreact to these figures. This stoic approach is credited to the high domestic core inflation rate, which is expected to remain elevated into the new year.

Mark Smith, senior economist at ASB, remarked that while these numbers are encouraging, they don’t cover some of the service costs which have been persistently high. He expects the RBNZ to maintain tight OCR settings in order to achieve around 2% inflation and believes that OCR cuts won’t be made until 2025.

Source Link: To read the full article, click here.