Consumer Price Index Inflation Falls to 2.2%: Why It Didn’t Slow Even More

“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 increase in the CPI was due to rental prices.

Council rate rises also pushed inflation higher, with prices for local authority rates and payments rising by 12.2% in the year to 30 September.

Across all regions, there was a range of local authority rate increases, some higher than 12% and some lower, Mr Growden said.

Cigarette and tobacco prices also rose, up 10% year-on-year.

These increases were mainly due to the annual increase in tobacco excise duty on January 1, 2024, Stats NZ said.

But lower gasoline prices, which fell 8%, helped offset higher prices elsewhere.

The New Zealand dollar weakened a touch to $60.70 million from $60.80 before the release.

Core inflation, excluding volatile sectors such as energy and seasonal food, was 3.1%.

“The era of price increases is over,” Finance Minister Nicola Willis said shortly after the data was released.

“There’s more work to do to grow the economy, but New Zealanders can be confident we’re heading in the right direction.”

Back to “victory”?

“Wage rises are finally outpacing inflation,” Kiwibank economists said.

“The cost of living crisis is ending, slowly. It may not seem like it, yet, but inflation has come down and will go down even further.”

Economists at Kiwibank said the Reserve Bank (RBNZ) engineered “a long, hard recession” to get inflation back within its 1% to 3% target band.

“The RBNZ can declare victory in the war on inflation. And they have acknowledged success, with rate cuts.”

The central bank last week cut the official cash rate (OCR) from 5.25% to 4.75%.

“The light at the end of the tunnel is brighter. Cost pressures are easing,” Kiwibank added.

Falling inflation would help household budgets and business operating expenses.

Imre Speizer, head of New Zealand strategy at Westpac, said the 0.6% quarterly rise was slightly weaker than the market had expected.

“If you look under the hood, there’s some stuff mixed in, but there’s probably more softer stuff than stronger stuff.”

Meanwhile, the odds of a 75 basis point (bps) cut in the Reserve Bank’s OCR at its next opportunity on November 27 appear to be increasing.

Overnight indexed swaps showed a 100% probability of a 50bp cut, but also showed a 35% probability of a 75bp cut in November.

The 2.2% rise put inflation back within the Reserve Bank’s mandated target band and nominally signaled victory in the central bank’s battle to use high interest rates to reduce inflation.

ANZ economists predicted a quarterly rate of 0.8% for an annual rate of 2.3%. Quarter-on-quarter inflation was 0.6%, slightly higher than the 0.4% increase in the June quarter.

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

Westpac senior economist Satish Ranchhod said there were risks on both sides of the inflation forecast.

“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 sounded a note of caution on high domestic inflation.

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

Non-tradable inflation measured final goods and services that did not face foreign competition and was an indicator of domestic supply and demand conditions.

But the contributions of these goods and services can be influenced by foreign competition.

Stats NZ described tradable inflation as that which measured final goods and services influenced by foreign markets.

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.