New Zealand Consumer Inflation Falls, Still Exceeds Bank Target
New Zealand’s Consumer Inflation Hits Two-Year Low
New Zealand’s consumer inflation has reached its lowest level in two years, although it remains above the central bank’s target range of 1% to 3%. This comes as prices for various goods and services, including food and housing, continue to rise.
Inflation Figures for the Third Quarter
According to Statistics New Zealand, annual inflation for the third quarter rose 5.6%, which is slower than the 6.0% increase seen in the second quarter. The consumer price index (CPI) also saw a quarter-on-quarter increase of 1.8%, faster than the 1.1% rise in the previous quarter. While slightly lower than economists’ expectations, these figures still indicate inflationary pressures in the economy.
The Reserve Bank of New Zealand’s Response
The Reserve Bank of New Zealand has been grappling with the challenge of inflation and has responded by raising interest rates. In October 2021, the bank increased rates to 5.5% from a record low of 0.25%. The bank believes that these rate hikes are beginning to have the desired impact on dampening inflation. However, it acknowledges that the cash rate will need to remain at this restrictive level for some time to ensure inflation returns to the target range.
Market Reactions
Following the release of the inflation data, two-year swap rates fell by 7 basis points to 5.63%, as the market scaled back expectations of a rate hike in November. The New Zealand dollar also experienced a slight decline, slipping by 0.3% to $0.5910.
Main Contributors to Inflation
Statistics New Zealand has identified rising prices for construction and rents as the primary drivers of annual inflation. Meanwhile, food prices have been the biggest contributor to quarterly inflation. Despite these increases, Nicola Growden, the prices senior manager at Statistics New Zealand, noted that price growth rates have been lower compared to previous quarters.
Non-Tradeable Inflation
Non-tradeable inflation, which includes goods and services not subject to international trade, rose 6.3% year-on-year, according to Statistics New Zealand.
Overall, New Zealand’s consumer inflation has fallen to a two-year low but remains above the central bank’s target range. The Reserve Bank of New Zealand continues to address this challenge by raising interest rates. Market reactions indicate a scaling back of rate hike expectations, while rising construction and rent prices, as well as food costs, continue to drive inflation. Despite the current levels, price growth rates have been lower in recent quarters. The impact of these measures on inflation and the economy will require ongoing observation and analysis.
