The likelihood of annual inflation moving below 3% in the September quarter appears to have been given a boost by the latest release of Statistics NZ's Selected Price Indexes (SPI).
The monthly SPI features goods that make up about 45% of the quarterly Consumers Price Index, the official measure of inflation.
And the August SPI figures are suggesting that we are on track to see annual inflation fall back into the targeted 1% to 3% range for the first time in about three-and-a-half years when the September quarter CPI results are released on October 16.
The Reserve Bank (RBNZ) has already started reducing the Official Cash Rate (OCR), by dropping it in August from 5.5% to 5.25% in the belief that it is now getting inflation under control.
And the latest SPI seems to offer further encouragement.
Indeed ASB senior economist Mark Smith said the "moderating annual inflation impulse" visible in the latest figures "increases our confidence that annual CPI inflation will fall below 2.5% in [the September quarter] of this year".
The ASB economists have maintained their September quarter CPI pick for annual inflation of 2.3% - which is what the RBNZ itself is actually picking too.
Smith said "if anything", lower oil prices, highlight some "downside risk" to the CPI figures.
"We also remain confident that conditions are in place that will deliver sub 3% inflation outcomes on a sustained basis even with OCR reductions.
"At 5.25% the OCR is still highly restrictive and needs to come down. We have pencilled in a further 200 bps [basis points] of OCR cuts by the end of next year (including 50bps of cuts by the end of this year) but note that actual OCR moves will be heavily conditional on the inflation, labour market and wider economic outlook," Smith said.
In the August month food prices rose 0.2%, following a 0.4% rise in July. The latest figures took the annual increase in food prices to just 0.4% for the 12 months ending August, compared with a rise of 0.6% in the 12 months to July.
This is all a far cry from as recently as June 2023 when we were seeing annual food price increases of 12.5%.
'Sticky' rents
One 'sticky' area of inflation that continues to be sticky but doesn't at least now appear to be getting any worse is rents.
In August the 'stock' measure of existing rentals rose 0.3%, which is up on the 0.2% seen in July, but the annual rate of increase remained at 4.3%. However, that's a rate of increase that remains well above the 1%-3% target for general inflation and would therefore be something the RBNZ is watching.
Fuel and air travel prices can be very volatile, but in the latest month they were 'good' volatile as far as consumers would be concerned.
Stats NZ said prices for petrol, diesel, and airfares were all cheaper in August 2024 than they were in July 2024.
In August 2024, petrol prices fell 1.7% while diesel prices fell 2.8%.
The 1.7% decrease in petrol prices follows a 0.5% decrease in July 2024.
"Petrol prices fell in all centres we collect prices for in New Zealand, except for Whangārei, which recorded a slight increase in August,” Stats NZ's consumer prices manager James Mitchell said.
"The decrease in August was much more widespread than in July, when only Auckland recorded a decrease, due to the ending of the Auckland regional fuel tax."
In August 2024, domestic air transport prices fell 0.8% while international air transport prices fell 2.0%.
The choc block's expensive
In terms of the annual food price rise of 0.4%, Stats NZ said higher prices for restaurant meals and ready-to-eat food (up 3.6%) and grocery food (up 2.4%) were the largest upward contributors.
Mitchell said the price increase in restaurant meals and ready-to-eat food was due to higher prices for lunch/brunch, hamburgers, and takeaway coffees.
The price increase in grocery food was due to higher prices for olive oil, chocolate blocks, and butter.
"The average price of a 250g block of chocolate has increased 20% since this time last year," Mitchell said.
Against these rises, the fruit and vegetables group fell 12.2% in the 12 months to August 2024. Fruit and vegetable prices were driven by lower prices for kūmara, potatoes, and lettuce.
Kūmara and potato prices were coming down from near-record-high levels in 2023. In the 12 months to August 2024, the price of kūmara fell 53.9%, while the price of potatoes fell 26.6%.
"The average price of 1kg of potatoes in August 2024 was $2.18. This is the cheapest recorded since 2021," Mitchell said.
Here is the detailed SPI information as supplied by Stats NZ:
31 Comments
If you assume the next quarterly inflation result comes in similar to the previous 4 at 0.5%.
That gives an annual inflation of about 2%
More rate cuts!
I wondering if the will increase the cutting rate to getting the OCR back to a 4% neutral level, otherwise the risk going too far.
-- Non-alc beverages are down month on month because people have finally realized that they don't really have the same kick as alcoholic beverages. Just not the same experience.
-- International accommodation is included in the SPI. How on earth do they measure that and why?
-- So US CPI inflation falls to 2.5%, in-line with expectations of 2.5%. Core CPI inflation was unchanged at 3.2%, in-line with expectations of 3.2%. This marks the lowest annual inflation rate since March 2021.
According to Truflation, the news is even better or worse, depending on how you look at things. Yoy inflation is down to 1.1%. My reckon is that Truflation gives us a window into a reality that might be leading what the boffins can come up with. But that's just my reckon.
Why can't Aotearoa have its own Truflation? What do we pay all those public servants for? Surely they have the technical chops to do similar. And it's not as if our lives are any less digitally dictated as the US.
The non-alcoholic beer market will continue to grow IMO. Lots of brewing equipment going on marketplace from those who got into it over lockdowns and are cutting back on the drink now, or giving it up altogether. It fills a market that has always existed. Parents with young kids, those wishing to cut down, those wishing to attend social events and drive but still have something to drink that is similar to others, and more. Super excited to see all the development in this space, however I wish they wouldn't cream the margins so heavily.
Infantile attempt at being funny. Nevertheless, many people do turn to the bottle at times like we're in.
In the US anyway, the YOLO economy, as in “you only live once” is booming. Americans are spending eagerly on concerts, vacations, wellness days and other splurges.
For now.
https://www.washingtonpost.com/opinions/2024/05/14/yolo-economy-downtow…
You gotta consider the price of some of these categories exploded post-covid and haven't moved back down to pre-covid levels. They will have a longer term effect on budgets if you annualize longer term inflation. Take travel for example; return air tickets back home rose ~50% circa 2022 and haven't fluctuated much since. So the YoY inflation for that single item would look pretty good comparing 2023 to 2024, but the annualized "inflation" from 2021 to 2024 would still be around 15%. I believe that's true for other stuff that impact inflation, so although it is a good sign that the YoY numbers are improving, it will take a good couple of years on those levels for people to start feeling the positive impact on their budgets
And if prices do go down to meet the market (which I think is a definite possibility), we then have a deflation problem.
The curry house I used to have lunch at did a lunch meal for $14. Now it is $20 and I can't justify that anymore. I doubt their ingredient costs went up more than a dollar, maybe rent and labour went up a bit. I suspect I am more likely to see that price decreased rather then increased.
I made 3 pizzas the other day. Went to Countdown and bought some salami, pizza bases, tomato paste, capsicum, and something else for the pizza (I can't remember). It came to $30, and that excludes cheese which we already had. For the same price I could have got 3 pizzas and 3 sides from Dominos.
Indeed. I own a pizza oven, but rarely bother with it unless I have 20 people coming over and contributing toppings. One of the 5kg bags of cheese alone is about $50.
Though you could make the same argument should you want to make your own wine. Buying enough grapes to make a bottle's worth from Countdown will set you back a good $30 at least. Then you still have to make it (using presumably the wrong kind of grape). There's something to be said about economies of scale... 😊
That'll be the interesting thing to see, if they (and other business in general) can hold on with current prices or succumb to competition/lack of customers pressure and decrease prices. I read a piece the other day where a restaurant owner was pleading for customers not to order Uber eats as the fee the restaurant had to pay ate all their margin. That's a tough place to be, I wonder if they can't risk not being on Uber eats and having the visibility/volumes that come from there (even on low margin) - but that might be one of the factors driving up their prices in general, which pushes away customers like you
The curry house I used to have lunch at did a lunch meal for $14. Now it is $20 and I can't justify that anymore.
https://www.youtube.com/watch?v=yChTg9ThtF4
Bit of a laugh
I like this monthly data - it shows the price shock hitting our shores in diesel and petrol prices, infecting other prices, and then subsiding as the world adjusted to a new price level. The last prices to respond are wages and rents of course, although these are backing away quickly now. What would have happened if RBNZ had closed shop in 2019 and opened today? Nothing much different.
When is anyone going notice that the RBNZ having their meeting a week BEFORE the CPI is released is insane?
There are 4 releases a year. Their contract is to manage HEADLINE inflation. Meeting a week each Qtr before the data is nothing but stupidity.
Look at the RBA, they meet a week AFTER the data comes out. The RBA is run by sensible people.
The RBNZ is completely incompetent.
The RBA is captured rather than competent.
Regardless, I imagine this oversight would've been fixed a long time ago if the RBNZ actually had to wait until data is released to the plebs to have a copy of it in their hands. Stats NZ wouldn't be burning the midnight oil the night before a CPI release, they probably even get RBNZ economists to sanity check the report weeks before it's released.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.