New Zealand Inflation Hits Top of RBNZ’s 1%-3% Target Band

itm2j1412v}lsc1l36ieq83]_media_dl_1.png Statistics NZ

Article content

(Bloomberg) — New Zealand inflation accelerated in the third quarter, pushing to the top of the Reserve Bank’s 1%-3% target band even as underlying price pressures recede and policy makers indicate further easing to come.

Article content

The Consumers Price Index climbed 3% from a year earlier, quickening from 2.7% in the second quarter, and matching estimates, government data showed Monday in Wellington. Prices advanced 1% from the previous quarter, exceeding the 0.9% forecast.

Article content

Article content

Article content

Faster inflation is unlikely to deter the RBNZ from its policy easing campaign given the prevalence of spare capacity in the economy. The central bank said earlier this month that it expects inflation will slow toward 2% by mid-2026 and signaled that lower interest rates are likely before the end of this year.

Article content

Article content

“The RBNZ can rest assured that, despite the uptick in headline inflation, underlying price pressures are in fact contained,” said Abhijit Surya, senior economist at Capital Economics in Singapore. “If anything, given the deeply negative output gap, risks remain tilted toward inflation undershooting the mid-point of the bank’s target next year.”

Article content

While the pick-up in inflation was led by one-time and seasonal items, including an 8.8% jump in local government land taxes, the central bank’s focus is on the trend in underlying gauges.

Article content

Non-tradables inflation, a closely watched indicator of domestic price pressures, slowed to 3.5% in the third quarter from 3.7% in the prior period, the report showed. That matched the RBNZ’s August projection. Another gauge, core inflation excluding food, energy and fuel, cooled to 2.5% from 2.7%.

Article content

Article content

New Zealand’s economy shrank 0.9% in the second quarter and remained smaller than in the year-earlier period, damping domestic price pressures. The housing and labor markets remain soft, pointing to only modest economic growth in the third quarter.

Article content

The RBNZ cut the Official Cash Rate to 2.5% this month — having eased by 300 basis points since August last year. Economists expect another 25-point reduction at the central bank’s final meeting of the year in November.

Article content

Another key to the rate outlook is the extent of imported inflation, particularly amid signs of slowing global economic growth and price pressures.

Article content

Imported or so-called tradables prices rose 2.2% from a year earlier, picking up from 1.2% in the second quarter and the fastest since late 2023. The acceleration was led by the cost of overseas accommodation which offset cheaper imported fuel prices, the statistics agency said.

Article content

Local government land taxes and electricity prices were the largest contributors to the uplift in domestic inflation, today’s report showed. The annual adjustment in land taxes is only recorded in the CPI in the third quarter.

Article content

Article content

(Updates with economist’s comment in fourth paragraph.)

Article content