Annual inflation has fallen to 3.3% after consumer prices rose just 0.4% in the June quarter, according to data released by Statistics New Zealand on Wednesday.
This marks a major milestone in the Reserve Bank’s war on inflation, with the headline rate now the lowest it has been since inflation first left the target band in June 2021.
Economists predicted the June inflation rate would be 3.4% and the central bank, which set its forecast back in May, was expecting 3.6% — all down from 4% in the March quarter.
This result puts headline inflation tantalisingly close to the 1% to 3% target range and could pave the way for interest rate cuts before the end of the year.
In a note prior to the data release, ANZ’s chief economist Sharon Zollner said she wasn’t expecting it to be a “hallelujah moment”.
“But it [will] mark real progress and, importantly, the end of a run of upwards surprises versus RBNZ’s expectations,” she said last Thursday.
Domestic inflation printed well above forecasts in the March data and scared the central bank into discussing hiking interest rates during their May meeting.
This latest release will be more reassuring for the policymakers with both imported and local inflation easing. Tradable prices fell 0.5% during the June quarter while non-tradables rose 0.9%.
The annual increases were 0.3% and 5.4%, compared to RBNZ’s forecast for 1.1% and 5.3% and down from 1.6% and 5.8% in March.
Cheaper transport, costly insurance
During June, transport costs fell for a third quarter in a row with petrol prices and airfares both falling. Food prices rose at their slowest annual pace since 2018, just 0.2%, as fresh produce supplies recovered from the extreme weather events last year.
More moderate prices in restaurants, local holiday accommodation, and retail shops also contributed to an improved headline inflation rate.
On the other side of the ledger, housing-related costs continue to be the largest contributor to inflation with a 1.1% increase during the quarter.
Rents, which rose 1.2% in the past three months, tend to track income growth and are slow to respond to higher interest rates. They are expected to ease as unemployment rises.
Higher electricity prices also increased housing inflation and construction costs kept rising, albeit at a slower rate with activity in the sector having tanked.
Finally, insurance costs were up 3.1% with previous rounds of inflation and increased weather-related risks flowing through to premiums.
It is this kind of stubborn services inflation, which is driven by earlier cost increases, that has been difficult for monetary policy to tamp down in the domestic economy.
ASB has estimated that inflation in a basket of “cost-driven” items—such as local authority rates, insurance, and indexed taxes on tobacco and alcohol—may be running as high as 10%.
While the significant decline in headline inflation appears to set the scene for an easing in monetary policy, the RBNZ is unlikely to act unless it sees core inflation falling as well.
Stats NZ’s measures of core inflation ranged between 3.4% and 3.8% in June, and the RBNZ will release an updated version of its core inflation model at 3pm.
108 Comments
In other words, even though the situation is becoming increasingly dire, the unemployment % won't read as high as it has done in previous recessions (like 1991) as many can't/won't register for a jobseeker benefit based on their own unique circumstances such as residency or say a partners income. Todays percentage unemployed, it's a figure that's pretty misleading as most of us know, it's not apples with apples.
In revised reply to your hastily re-edited comment, unemployment peaked at just under 11% in the 1991 recession. Despite previously calling me out (claiming you were questioning me on behalf of a friend) for making a false statement regards the existence of an economic recession in 1991 that I worked through whilst employed with a major bank - Westpac, you again scarpered after I posted evidence that the recession really did happen ✅
edit
Yes - true as explained here; https://www.stuff.co.nz/national/explained/127623203/can-we-trust-the-o…
Or, for an accurate snapshot, anyone can search up the latest MSD statistics by previous week here; https://www.msd.govt.nz/about-msd-and-our-work/publications-resources/s…
It's quite sobering.
Not at all. By supplying links with transparency, at least that's certainly not the intention here. I think the unemployment rate and methods used to collate it is ambiguous.
Since you're obviously triggered, I think this has more to do with something that burdens you.
Yeah I think there is more unemployment out there than they know. We just advertised for Office staff, had 38 applicants in first day, I would say 70% would of been newly arrived immigrants to NZ, we stopped it after 60 applicants, but I keep thinking I wonder what promises or stories they heard for them to arrive in NZ in first place, I bet a number of them are really disappointed.
I'd be concerned with any premature reduction in the OCR. A higher for [a bit] longer interest rate policy seems the most prudent approach to me. It's a case of shorter-term pain for longer-term gain.
The message must be driven home that over-indebtedness and surging house prices are not good for economic stability - and the longer-term welfare of our communities/households.
TTP
Agreed. The DTI's, as they currently sit, are too generous. I would rather see a max of 5x for owner occupier. And a max of 4x for any investor lending. Investors should never be given any chance to compete anywhere near equally with FHB.
I wouldn't mind seeing an actual restriction on investors purchasing any existing home below the median price for the given location.
If they did these things they could start cutting the OCR. But it is a tricky juggling act because once the cuts start the NZD could freefall.
Yeah looks like we are getting cuts earlier, November is looking likely. Again it all depends on the fed who are pivoting into earlier cuts too.
The economy is falling apart far faster than expected.
Though I'm worried about inflation bouncing back with shipping costs going up again into a falling OCR, nightmare fuel.
Cost increases for shipping into New Zealand have only increased moderately so far in 2024. And off a very low base. Nothing close to what we saw in 2021. There will be an attempted to raise shipping prices ex Asia in August. But the ability to make that stick is subject to demand and demand is weak all over NZ for durable goods.
Domestic inflation printed well above forecasts in the March data and scared the central bank into discussing hiking interest rates during their May meeting.
Out of touch
No its the same stupid logic that ardern and co used. They went too hard for too long and thats what helped stuff her prime ministership in the end and Labour thrown out.
Maybe an obscure reference but the comment was made in the light of A Orr threatening to raise interest rates just three months ago, the stupidest comment of all.
Baywatch I should join all the dots in my comments from now on, just for you and Grandpa so you dont get triggered
Some pretty dangerous rhetoric by A Orr at the May meeting if so. And now having to slam the conversation into reverse is completely poor management
Next quarter the Auckland fuel surcharge will come off adding to downward inflation while the sept 2023 1.8% will also drop out. Could easily be below 2 percent for the year
they won't know if you have cancelled but you will be in breach of contract. standard clause in your loan contract, although the contract may reference a seperate memorandum that stipulates it and outlines what the bank does in the effect insurance money is paid out (i.e. they have first rights to it)
Dear council rates team, I choose not to receive your services. Dear mr bank ceo I cant afford to switch banks but I refuse to pay your much higher NIM
The good people of thames are getting ripped off for their fuel costs, what other options do their residents have, complaining doesnt work
You mean get on board with repeatedly injecting bank finance to support the ponzi vs getting inflation under control?
The no1 cause of societys challanges is overpriced shelter via mortgage and or rent. Underlined by the screams as rates are back in the lower end of normal. No2 is mass uncontrolled immigration without preparing for it with prepetory infrastructure investment. No3 is cheap debt acting like meth on the ponzi buyers.
No3 and No2 fuels No1. Let's not even talk about lack of electoral mandate for 2.
Will the RBNZ cut the OCR soon?
Remembering we have so many inflationary things still to come ... Tax cuts, Rates rises, insurance premium flow through, etc. etc.
Methinks our RBNZ will stick to its (obviously wrong) stance of being within the 1-3% range before they do anything. (Hope I'm wrong. NZ Inc is suffering needlessly.)
Edit: Any chance the RBNZ will actually address the dis-inflationary effects that a cut to the OCR would have next time around? (Nah. They like to pretend the OCR doesn't cause - or entrench - inflation.)
I agree -if you look at last three quarters CPI 0.5, 0.6, now 0.4 we clearly have local inflation below target -which is the only inflation that RB has any chance of impacting
Imported inflation could easily be higher next quarter as could that of monopoly service providers so continuing on the current track will just destroy more of our economic base adding further to our high cost low value economy - run by the cult of managerialism - maybe thats what the socialist civil service wants
refix due end of this month. Tossing up the options:
a) 6 month refix
b) 12 month refix
c) float for a couple of weeks till the August OCR meeting then a) or b).
Just need to see how much extra the cost of ~4 weeks at floating rate will cost vs what i'd save if the rates drop 0.25% after the OCR
The flight of our talented to Aussie will continue unless the pressure is eased. RBNZ damage to the economy is going to take a long time to heal so why stay here and put up with it. Fine for Orr to sit in his office looking at outdated figures but the realtime destruction happening now to NZ businesses and families.
This is job done, The only thing keeping us outside the band is the Sept 23 QTR that needs to wash through. If the Sept 24 QTR increase is 0.5% this will take the index from 1272 to 1278. Then divide the projected Sept 24 Index by Sep 23 Index (1253). This gives Sept 24 CPI of 2%, Bang right on target.
So why is the reserve bank still screwing over young kiwi's who are trying to make their way in the world with a mortgaged house for their families?
I know I may be ignoring rising insurance and yesterdays letter from Mercury showing a 20% increase in Gas pricing.
Those young kiwis you weep for were screwed over by having to pay twice the price for that family home you mention, as they would have done a mere few years before they bought it. That's the problem - the size of the Debt, not what the Cost of the Debt is. It's far easier to handle a rise from 5% to 8% mortgage rates on a Debt of $300k than on $600k. Fix that for future young kiwis, and we are getting somewhere.
Even if interest rates remained static on both borrowing scenarios ($300k @ 10% vs $600k @ 3%) with the same weekly outgoings, a smaller principal amount would always be the preferred option. Any increased repayments from pay rises/lump sum amounts come straight off a smaller balance.
When people wail about 20% interest rates in the 70's, they're not "mathing" very well. 20% interest rates would imply high levels of general inflation, so those increased repayments from wage increases are more certain.
You're conflating investors crowding out the market for capital gains with first home buyers wanting a home to live in.
Boy did investors crowd out the market too, they outnumbered FHB at least 3:1 in 2014/2015 when RBNZ C31 data series first started and on similar (sometimes larger) average/aggregated borrowed amounts.
RBNZ needs new / better tools. Not sure what the answer is but it's clear hammering already under pressure younger-generational home-owners for the greedflation of others over the last few years has it's limits and is just benefitting Australia.
Especially when you see the many cashed up mortgage free property owning class freely spraying their money around europe and the world - whilst many here nervously watch the supermarket check out screen.
Seems the 'cost of living crisis' only applies to some.
I wouldn't necessarily suggest they're spraying their capital gains around the world. Those will be accumulating interest in a bank account.
Many would be spraying their $20k p.a. taxpayer funded old person's welfare payments around the world. You're right though, cost of living crisis doesn't apply to cashed up wealthy retirees who will still claim a benefit while the rest of society tightens their belt. We shan't dare look at how our much more wealthy neighbor tests their pension payments.
Just claim something about a social contract, and how making something universal cuts down on admin costs even though we have existing admin that prevents me from claiming an unemployment benefit due to my income.
The problem is, though, that any wealthy NZ Superannuation claimant can become poor, overnight, if any Means Test etc comes in with the way our taxation, gifting and asset transfer laws are. Their children, would, in that same overnight period, become the wealthy ones in their stead.
What do we need? Reform in the above areas; taxation (including Gifting Tax, Negative Gearing, Capital Gains Tax and Inheritance Tax) and Stamp Duty on asset transfers, as a good place to start. Then, bring in Means Testing.
But none of the above looks like a viable political platform to run on, does it?!
The OCR may be cut before end of year if this inflationary trend continues. As I have posted many times before on here though there are still risks of further inflationary surges down the track a bit due to the global geopolitical situation, climate change and future monetary policy responses by central banks. Shipping costs are also on their way back up, oil is still over the $80 a barrel mark so this could play out in the months to come or be a year down the track depending on what unfolds. Global inflationary forces remain in the background bubbling away so its something to keep an eye on. Hopefully we get a lengthy relief period in between any future surges.
Enjoy today's reading! It will be the lowest for some time because there is only upward pressure from now on: See: https://www.interest.co.nz/business/128743/global-shipping-rates-have-n…
Shipping costs have a 3-9 months lag on our supply chain costs and will bite us coming 2 quarters.
See: https://www.interest.co.nz/public-policy/128739/insurance-council-tells…
See: https://www.transpower.co.nz/system-operator/notices-and-reporting/mark…
Click on the report and scroll to page 2 to see the strong increase of electricity spotprices due to very low hydro lake levels and high thermal generation commitments. Futures for 2025 have dramatically increased last couple of weeks.
Wait to you see how much profit NZs largest insurer reports from their NZ business soon...i think it will be embarrassing and there will be some hard questions that will need to be asked, especially as a major contribution to inflation with such high premiums...or i could be wrong!
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