New Zealand inflation unexpectedly held at 2.2% last quarter

    • Indications of a further decline in domestic price pressures may encourage the RBNZ to maintain an aggressive easing stance.
    • Indications of a further decline in domestic price pressures may encourage the RBNZ to maintain an aggressive easing stance. PHOTO: BLOOMBERG
    Published Wed, Jan 22, 2025 · 08:41 AM

    NEW Zealand’s annual inflation was unexpectedly steady in the final three months of last year, remaining above the midpoint of the central bank’s target band even as domestic price pressures eased.

    The Consumers Price Index (CPI) rose 2.2 per cent in the fourth quarter from a year earlier, matching the pace three months earlier, Statistics New Zealand said on Wednesday (Jan 22) in Wellington. The Reserve Bank of New Zealand (RBNZ) and economists’ anticipated a 2.1 per cent gain. Consumer prices advanced 0.5 per cent from the third quarter, matching estimates.

    New Zealand’s currency was little changed immediately after the data, buying 56.75 US cents at 11.38 am in Wellington. The yield on policy sensitive two-year government notes was also little changed.

    Indications of a further decline in domestic price pressures may encourage the RBNZ to maintain an aggressive easing stance. Annual non-tradables inflation slowed to a three-year low of 4.5 per cent in the fourth quarter from 4.9 per cent in the prior period, today’s report showed. The RBNZ tipped 4.7 per cent in its November projections.

    “Cooling non-tradable inflation increases our confidence CPI inflation will remain well below 3 per cent over 2025, paving the way for additional OCR (Official Cash Rate) cuts,” said Mark Smith, senior economist at ASB Bank in Auckland. He sees the benchmark reaching a low of 3.25 per cent this year.

    The RBNZ began cutting the OCR in August and has since been one of the world’s most aggressive easers, with a cumulative 125 basis points of reductions taking it down to 4.25 per cent. Policymakers have signalled they expect to cut by a further 50 basis points at the next review on Feb 19.

    Still, beyond February economists are divided on how much further cutting is required – particularly given signs of growing optimism among businesses and expectations unemployment will not rise as much as previously feared. The impact of US protectionism on global inflation may also increase the cost of imports.

    “We expect annual CPI inflation to marginally push higher over 2025, ending the year at around 2.5 per cent,” said Smith. “The key swing variable is for tradable goods and services prices, which are expected to move to a mildly inflationary impact over 2025 to 3.5 per cent.”

    Housing rentals and local government land taxes were the largest contributors to the annual inflation rate, the statistics agency said. Petrol prices recorded the largest decline.

    • Imported or so-called tradables prices fell 1.1 per cent from a year earlier, but significantly rose 0.3 per cent from the third quarter – the first increase in five quarters.
    • Non-tradables prices advanced 0.7 per cent in the quarter – economists had expected a 0.8 per cent gain. BLOOMBERG

    Share with us your feedback on BT's products and services