Consumer Price Index: Inflation falls to 2.2%

“For the first time since March 2021, annual inflation is within the Reserve Bank of New Zealand’s target band of 1-3%,” said Nicola Growden, director of consumer prices at Stats NZ.

“Prices are still rising, but not as much as previously recorded.”

The increase in rental prices was the biggest contributor to the annual inflation rate, at 4.5%. Almost a fifth of the 2.2% annual rise in CPI was due to rental prices

Economists had expected annual inflation to fall below 3% in the third quarter of the year.

Earlier today

If forecasts of a 2.3% annual inflation rate are correct, it will be the slowest rate of price increase since the first half of 2021.

This would put it back within the Reserve Bank’s mandated target band and would nominally mean victory in its battle to reduce inflation with high interest rates.

But close attention will be paid to the breakdown of the data, with non-negotiable domestic inflation expected to remain elevated above 5%.

Most of the decline has been supported by lower prices for imported goods such as gasoline and food.

Expectations are for a substantial drop in the top rate from the 3.3% annual figure recorded in the second quarter.

ANZ economists are tipping a quarterly rate of 0.8% for an annual rate of 2.3%.

Westpac and ASB expect a rate of 0.7% for an annual rate of just 2.2%.

Westpac senior economist Satish Ranchhod warned there were risks on both sides of inflation forecasts.

“On the downside, falling consumer spending could put an even bigger drag on prices for retail goods and some services.

“However, there is also the potential to see continued strength in the prices of items such as insurance and rates, which have contributed to stronger-than-expected non-traded inflation over the past two years.”

ANZ senior economist Miles Workman also struck a note of caution on high domestic inflation.

“Headline CPI inflation falling back into the 1-3% band may represent a key psychological threshold for policy makers and RBNZ watchers. But it should break the RBNZ with the bubble inflation that now do you have a double handle?” he said

“We don’t like to be partisan, but non-marketable inflation is still too high, meaning if the taps ring in the RBNZ building next week, they will be celebrating the progress of global disinflation as much as their own. Domestic deflation looks poised to continue, but there is still some way to go.”

ANZ economists expect non-negotiable inflation (driven domestically) to stand at 1.5% for the quarter and 5.2% for the year. That would be only a slight drop from the 5.4% annualized rate recorded in the second quarter.

Council rates were expected to be a key driver of quarterly inflation, with their biggest quarterly rise since 1987, Workman said.

Liam Dann is general business editor of the Herald of New Zealand. He is a senior writer and columnist, and also hosts and produces videos and podcasts. He joined the Herald in the year 2003.