Headline inflation held steady at 2.2% in the December quarter, and various measures of core inflation continued to ease, even as the Reserve Bank of New Zealand (RBNZ) began to cut interest rates.
Statistics NZ said the Consumer Price Index (CPI) rose 0.5% in the final three months of 2024, keeping the annual inflation rate at 2.2%, a result broadly in line with forecasts from both the RBNZ and economists.
This result affirms the central bank’s decision to loosen monetary policy in August last year, shortly before headline inflation fell into the 1% to 3% target range during that quarter.
On target annual inflation has been possible largely due to lower import prices, a trend that persisted in the December quarter. Tradable inflation remained negative at -1.1%, while non-tradable inflation declined from 4.9% to 4.5% — below market expectations for 4.7%.
Core inflation also eased from slightly elevated levels. The trimmed mean, which excludes the most significant price changes, fell from about 2.5% to 2.3%, while the CPI excluding food and energy declined from 3.1% to 3%.
Nicola Growden, a Stats NZ spokesperson, said this was the second consecutive quarter the annual inflation rate had been in the RBNZ’s target range.
“Prices are still rising, but not as much as previously recorded. The most recent peak was in the June 2022 quarter when annual inflation reached 7.3%,” she said in a release.
Rent was the largest contributor to the annual inflation rate. Prices rose 4.2% across 2024 and were responsible for almost a fifth of the overall rate. Local authority rates were another big contributor, with a 12.2% increase making up 16% of annual inflation.
Petrol and fruit and vegetable prices fell 9.2% and 8.6% during the year, helping to offset other increases. Together these two categories make up 6.5% of the CPI basket.
Domestic and international airfares, which rose 9.3% and 6.6% each, along with holiday accommodation, which increased by 3.4%, were some of the largest contributors to December's quarterly inflation rate. These items, which are generally more expensive during the summer months, account for about 6% of the CPI.
Insurance premiums, which make up 3% of the index, rose 1.8% over the past three months. Recent cyclones and floods have driven up reinsurance costs, while inflation has increased the cost of replacing insured items. As a result, insurance premiums have risen 11.2% in the year.
Satish Ranchhod, an economist at Westpac NZ, said much of the pressure on the domestic inflation rate stemmed from non-interest rate sensitive sectors such as insurance and local council rates, which increased 12% this year.
“But even with the ‘stickiness’ in costs like insurance premiums, the overall trend in inflation is now looking much more benign than it has for a long time,” he wrote in a note prior to the data release.
“The underlying trend in inflation is much better contained than it has been in a long time, with measures of core inflation drifting back towards the 2% midpoint of the RBNZ’s target band.”
Helping to reduce inflation in the December quarter was a 0.5% decline in food prices, which make up 18.8% of CPI, and a 1.3% fall in petrol prices — another 4% of the index.
However, economists warn that deflation in tradable prices is likely to reverse in 2025 as the global economy grows, the Kiwi dollar weakens, and oil prices increase. Petrol pump prices were low for most of the December quarter but rose sharply heading into January.
Economists at BNZ are forecasting the annual inflation rate will increase to 2.5% throughout much of 2025, as tradable inflation returns before non-tradable inflation falls to the desired 3%. However, this shouldn’t deter the RBNZ from cutting interest rates to neutral.
“Overall, the balance of indicators suggests underlying economic activity struggled to gain traction in Q4 and points to the output gap continuing to widen. This is expected to maintain downward pressure on large parts of domestic inflation over the medium term,” they wrote in a note.
New Zealand’s annual inflation rate is now lower than other comparable countries. Australia’s monthly rate in November was 2.3%, the United Kingdom’s equivalent CPI measure was 2.5% in December, and the United States’ was at 2.9%.
73 Comments
How do you reckon councils will pay for basic infrastructure without outsized rate increases?
3-water pipes are in dire need of refurbishment, water treatment plants across the country are well-past their use-by date, roads in desperate need for better upkeep, etc.
I guess we are rapidly approaching the limit to which the housing Ponzi can privatise gains from mass immigration and socialise the infrastructure costs associated with it.
5% Dang.
- The NZ property Ponzi needs 3.5% mortgages, or lower, to see any property price growth......
I guess I will need to continue plugging away at my Real Economy, Productive Job....and not rely on the once lucrative, property price bubble growth ladder, that fattened my wallet upto 2021.
From then and into the future it's all sliding down the loss snake.......
Yeah. We are not 'safe as houses' for now.
Trump has also introduced a whole new level of uncertainty to the mix . I anticipate a financial and geopolitical roller coaster for 2025.... hold on to your hats
I am condsidering hedging my bets by buying a ton of gold and storing it in a personal bunker (along with a few years of supplies and weapons 😀).. but apparently bunkers are weapons are in high demand at the mo and gold is shooting up in price.
True. I am in holiday on SEA with family. Local news reports suggest the likes of Malaysia and Thailand are also facing aging workforce issues similar to China. Factories in this part of the world are being forced to provide outsized wage hikes to keep their lines properly staffed.
Meanwhile, Indian outsourcing companies are also buckling under growing pressure from staff turnover and signing off on double-digit salary increases across the board, promising more such increases to come over the next few years.
All this will surely have a significant impact on tradable inflation figures over the next few years.
Low and stable inflation is the best policy setting by far. And it's not even close.
It is a damn shame that deflation advocates are making a comeback. It is an approach that misunderstands basic economics and completely ignores the huge destruction deflation can cause.
Could it be that it's our "basic economics" that is all wrong? Maybe we should have some healthy deflation now and then?
Look at electronics, they are constantly decreasing (deflating) in price for the same technology and yet this deflation hasn't been destructive to that industry/economy, in fact it's the complete opposite!
Maybe we have it all wrong, maybe we should be embracing deflation from time to time (like we have seen in electronics for many decades now), not only for the sake of our financial well being but for our mental well being too? Because this constant and relentless climb upwards against prices (inflation) seems to be destructive to societies (and therefore economies too) over time.
Its like owning a car and someone takes away 1 tyre and you go - that's fine just inflation?
Its not like that at all.s
Its more like...
you buy a new car and it get you 600km/tank of gas, after 1 year the efficiency of the engine reduces, bearings wear and it only gets 588km/tank.
wear and efficiency losses are expected, as is inflation.
This is as low as the CPI can gets! Tradable inflation has bottomed out or is slowly increasing again. See the commodity prices and the drop in the value of the NZD. Non-tradable will be stable at this level before increasing again due to council rates double digit increases and the Commerce Commision to allow our electricity bills to increase with $15 per month for each connection.
Any money freed up by mortgage rates decreases will be absorbed by those costs and not used for discretionary spending.
If public transport in my area goes up by 70% this year as signalled by NZTA, that's $3600 in saving I'm going to have to find. I'm interested in people's thoughts about how a large bump in PT costs would affect the economy.
More car use, more congestion, less productivity.
A lot saw it coming.we moved into the center of town to avoid the inevitable huge rises in personal and public transport.
Think less government subsidies, oil price spikes, climate change initiatives, need for taxes, immigration, new infrastructure build costs and road/rail maintenance... all will drive up costs and all of which will be passed to the person(s) who is being transported 🤔
I get up and cycle my board to the beach each morning 🏄♂️..or wall to the cafe/shops. Work from home. Easy as.
In some weird way I do enjoy to watch the lines of traffic as I cycle past.
"Rent was the largest contributor to the annual inflation rate. Prices rose 4.2% across 2024 and were responsible for almost a fifth of the overall rate. "
So greedy landlords struggling with interest rates that were held too high, for too long, by the RBNZ then?
Who'd have thought, ay?
One of my favorite sayings: "Hindsight explains the injury that foresight would have prevented."
Interest.co.nz telegraphed this. As did I - at specific point that I judged the 'last chance' to be.
But that's the problem with TDs ... You get locked in ... and suckered.
Excellent news that rents have increased. Owners of rental property have been supporting tenants for too long now. High interest rates have decimated returns for investors, but good on them for holding on. Tenants and their long haired, guitar strumming,leftie supporters have no idea the costs investors face. Tenants only have to find one sum every rent day while investors not only have to pay the mortgage, rates, repairs, tax, vacancies, management fees etc, they have to suffer vagaries of the market and often see their investment decrease in value as has happened over the past year or two.
Mortgage rates because they borrowed (paid) too much.
Let them go broke, let the house be purchased at the new low price, new landlord can then rent at lower rates and the economy might have a hope of recovery.
Sooner we destroy the bidding up housing ponzi the better.
I suspect many tenants did not ask their landlords to price them out of the market by collectively bidding up the price of housing using cheap leveraged debt. As a home owner, I also have to deal with a lot of those "abhorrent" costs you list. But I wouldn't trade it for being a renter that's for sure.
You'll be hard pressed to find sympathy from anyone other than other simple minded landlords battling with the Dunning-Kruger effect. These owners of rental property chose to load themselves up with these costs, which are not too dissimilar to what real businesses must deal with.
have no idea the costs investors face.
These costs are a known risk when purchasing an IP. If you can't handle the heat/risk, get out of the kitchen/market. Don;t come complaining that you have to put some of your own money into an investment you entered into knowing said risks. If it makes you uncomfortable having to top up your investment, then imagine what it is like for many renters who's percentage of net income to rent per week is increasing to 50% plus week by week. Renters can only be squeezed until there's no juice left.
Still above 2%.
I think that we need to seriously adjust our neutral inflation interest settings. The prevailing low interest rate expectations are just fueling highly problematic asset speculation bubbles as we have/are just experienced.
As per the attached article the recent rates are at historically low and in my view unsustainable levels.
https://www.interest.co.nz/bonds/124368/harbour-asset-managements-hamis…
Comments like "dang we need rates below 3.5%" for the property speculators illustrate the point.
With inflation at 2% and mortgage rates at 3.5% nobody in their right mind should be lending or depositing cash. We need a far more productive and profitable economy that can support decent interest rates as opposed to propping up asset speculators who's only activity is just milking inflation at the expense of the hapless cash depositors.
Agreed. Have been reading through 'The Price of Time' by Edward Chancellor. Fairly heavy reading and don't necessarily agree with all of it, but he lays out a credible case for how damaging it is to have such artificially low interest rates (because everything gears towards asset speculation, and now we find ourselves in this nasty scenario where the "real economy" becomes dependent on asset speculation).
"Still above 2%. "
So tell me ... What is the RBNZ's target range? .... (LOL)
"Comments like "dang we need rates below 3.5%" for the property speculators illustrate the point. "
So you are yet another pub economist that sees interest rate as only having influence over the housing market, ay?
What about the rest of NZ Inc - that actually works and produces stuff for a living - that don't have the advantages under our crappy tax system to make untaxed capital gain?
Billionaires existing, is far more harmful than a low interest rate, yet they aren't going anywhere. The nature of the financial markets and their extreme burden and wealth extraction from actual productive enterprise, is again, incredibly harmful. They won't be going anywhere.
Theory doesn't matter, what benefits those two areas is what will happen, generally. Asset inflation benefits those with the most assets, I'd count on it.
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