Stats NZ says food prices fell 0.6% in February, while rent increases showed signs of stabilising and domestic airfares went up again; economists see 'upside risks' to March quarter inflation figures

Food prices increased 2.1% in the 12 months to February 2024, the smallest increase since May 2021, according to figures released by Statistics NZ said on Wednesday.

Additionally, the rate of rent increases showed perhaps some sign of stabilising, while in the past month domestic airfares took off again. Petrol prices moved up too. And there was a sharp spike in the cost to Kiwis of overseas travel accommodation.

This is according to the latest monthly release of Selected Price Indexes (SPI) by Stats NZ. The full details are in the table at the bottom of this article.

ANZ chief economist Sharon Zollner and economist Henry Russell said the rise in domestic airfares was "much stronger than expected" and posed some "upside risk" to non-tradable inflation forecast levels.

Westpac senior economist Satish Ranchhod has increased his pick slightly for the rate of inflation as of the March 2024 quarter.

The SPI cover about 45% of items included in the Consumers Price Index (CPI) measure of inflation, including some of the more volatile and hard to forecast prices such as those for air travel and petrol. 

Monthly food prices fell 0.6% in February 2024 compared with January 2024, Stats NZ said. The biggest contributor to this fall was fruit and vegetables, driven by cheaper prices for apples, kumara, and tomatoes. Other items that have contributed to the monthly fall include boxed chocolates, yoghurt, and lamb.

Meanwhile the just 2.1% annual food price increase compares with a whopping 12.0% increase that was seen in the 12 months to February 2023.

Stats NZ said the lower annual increase was due to cheaper fruit and vegetable prices, down 9.3% in the 12 months to February 2024.

“Cheaper prices for fresh produce such as tomatoes, broccoli, and lettuce drove the decrease in fruit and vegetable prices,” Stats NZ's consumer prices manager Will Bell said.

Separately, Stats NZ said that due to a processing error in January 2024 it has revised food prices for that month. These revisions impact the food group and several lower-level indexes.

Apart from fruit and vegetables, Stats NZ said all other broad food groups increased in the 12 months to February 2024. Price movements, in order of their contribution, were:

• restaurant meals and ready-to-eat food prices – increased 6.7%
• grocery food prices – increased 3.9%
• non-alcoholic beverage prices – increased 4.3%
• meat, poultry, and fish prices – increased 0.2%.

“Going out for a meal or grabbing takeaways was more expensive in February 2024,” Bell said.

The cost of accommodation both internationally and domestically has increased in the 12 months to February 2024.

Prices for international accommodation increased 24.5% in the 12 months to February 2024, after a decrease of 6.3% in the 12 months to February 2023.

“The cost of staying at accommodation while abroad, is more than 40% more expensive than five years ago,” Bell said.

Domestic accommodation increased 6.1% in the 12 months to February 2024.

In terms of rents, which make up about 9.5% of the CPI and have been rising strongly, these maybe showed some signs of stabilising in February.

The 'stock' measure of existing tenancies rose by 0.4%. This gave an annual increase of 4.5%, which was the same as for the previous month - which is the first time the annual figure hasn't risen in a month since October. 

The 'flow' measure of new tenancies, which is volatile, actually fell 2.0% on a monthly basis, while the annual rate of increase was 6.0% - down from 6.8% the previous month.

Domestic airfares, having fallen sharply in January (by 12.2%), resumed an upward trajectory in February, with a 7.4% rise. International fares, however, dropped 1.7%, following a 21.6% fall in January.

The March quarter CPI inflation figures will be released on April 17.

ANZ's Zollner and Russell said they see "upside risks building" around the Reserve Bank's forecast of 0.4% quarterly inflation and 3.8% annual rate for the March quarter. As of the December quarter the actual annual rate of inflation was 4.7%.

"And unlike in recent quarters, risks are broad-based across both the tradables and non-tradables sides of the basket. That said, there’s still another month of data to come before we finalise our Q1 CPI pick, and given the volatility across the SPI components, a reversal in March can’t be ruled out. However, we think for the RBNZ’s tradables (and headline) inflation forecast to come to fruition, a plunge in international airfares in March would be required," they said.

Westpac's Ranchhod said the Westpac economists now expect that New Zealand consumer prices will rise by 0.8% in the March quarter (previous forecast was for a rise of 0.7%). That would see the annual inflation rate dropping to 4.2%, down from 4.7% at the end of 2023.

"Inflation is likely to be stronger than the RBNZ assumed at the time of their February Monetary Policy Statement. While inflation pressures are easing, that decline is occurring gradually. Notably, we’re still seeing strong price increases in parts of the domestic economy. February saw food price inflation surprising to the downside. However, that was more than offset by strength in areas related to travel, like the cost of airfares and overseas accommodation (with price rises in accommodation coinciding with the recent Taylor Swift concerts)," Ranchhod said.

BNZ's economists have also raised their quarterly inflation forecast to 0.8%, in their case from a previous pick of 0.6%.

"At face value, if we are right, this will be highly bothersome for the central bank whose current forecast is 0.4% for the quarter, 3.8% for the year," BNZ head of research Stephen Toplis said.

"From our perspective, the upward revision to the Q1 CPI is fully unwound in Q2 as we see some of the latest reported price increases reversed. So we still have annual inflation within the [1% to 3%] target band by the end of this year.

"Given the nature of the shocks hitting the CPI we think the RBNZ will look through any near term upside surprise but the data will give it further supporting evidence for its assumption that rates are on hold through calendar 2024," Toplis said.

The SPI series was introduced by Stats NZ in November of last year in response to pressure for more timely pricing information. While Stats NZ is at pains to stress that this release is not a formal and full measure of NZ's inflation, with the recognised measure continuing to be the quarterly Consumers Price Index (CPI), the SPI has nevertheless been quickly and happily accepted in the marketplace as a valuable guide for inflation.

Indeed the Reserve Bank's Monetary Policy Committee, which sets the Official Cash Rate, made special mention of the SPI in the RBNZ's February Monetary Policy Statement saying it "welcomed the publication of these monthly indicators".

"The Committee also noted that more frequent publication of inflation figures and more regular reweighting of the CPI would be consistent with global practice. Such changes would support the Committee in assessing the current state of the economy, particularly in periods of heightened economic uncertainty and volatility."

Here is the detailed SPI information as supplied by Stats NZ: