New Zealand Q2 CPI rises 1.1%, slightly faster than expected

NEW Zealand’s consumer inflation came in slightly above expectations in the second quarter, driving swap rates higher as the market pushed out expectations for when the central bank might start cutting the cash rate.

Consumer prices rose 6.0 per cent year-on-year in the second quarter, slower than the 6.7 per cent increase in the first quarter, Statistics New Zealand said in a statement on Wednesday (Jul 19). It is now below the three-decade high of 7.3 per cent inflation seen in the second quarter of 2022.

The consumer price index (CPI) rose 1.1 per cent quarter-on-quarter, slower than the 1.2 per cent rise in the first quarter. The data was just above economists’ expectations in a Reuters poll for a 1.0 per cent rise for the quarter and a 5.9 per cent annual rise.

Inflation is a significant challenge for the Reserve Bank of New Zealand (RBNZ) and it has responded by raising interest rates to 5.5 per cent from a record low 0.25 per cent in October 2021.

While it has said it now believes that the rate increases are having the desired impact on dampening inflation, it expects rates to hold at a “restrictive level” for the foreseeable future.

The New Zealand dollar rose 0.4 per cent to US$0.6297, while the two-year swap rates rose 8 basis points to 5.415 per cent, as markets pushed out the timing for their expectations of the first cut.

BT in your inbox

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign Up

Sign Up

“Data reinforce that the RBNZ can not yet pat itself on the back for a job well done,” said ASB senior economist Kim Mundy. “Moreover, the RBNZ will most likely be concerned to see that price rises became more widespread in Q2.”

The main drivers of the annual inflation were food and housing prices, Statistics New Zealand said in a statement.

“With food prices up 12.3 per cent annually, consumers may be buying cheaper alternative to keep their food bill lower,” said Nicola Growden, the prices senior manager at Statistics New Zealand.

SEE ALSO

New Zealand central bank hits pause with cash rate at 5.5%

“The price of building a new home has increased by more than a third in the three years from the June 2020 quarter,” she said.

Statistics New Zealand added that non-tradeable inflation slowed to 6.6 per cent on year, off a 20-year high of 6.8 per cent. REUTERS