New Zealand Inflation Update

By Lucy Craymer

WELLINGTON (Reuters) – Inflation in New Zealand has returned to the Reserve Bank of New Zealand's target range of 1% to 3% in the third quarter, allowing the central bank to consider further rate cuts.

Statistics New Zealand reported on Wednesday that annual inflation fell to 2.2% in the third quarter, marking the first time it has been within the target range since March 2021. Previously, inflation was 3.3% in the second quarter and peaked at 7.3% in June 2022.

Kiwibank chief economist Jarrod Kerr commented that the central bank can claim victory in the fight against inflation, stating, "The light at the end of the tunnel is burning brighter. Cost pressures are easing." He added that while current policy settings remain restrictive, more interest rate cuts are likely.

The consumer price index rose 0.6% in the third quarter compared to the prior quarter. Economists polled by Reuters anticipated a 0.7% rise quarter-on-quarter and 2.2% year-on-year; the central bank had projected 2.3% for year-on-year inflation.

Following the data release, the New Zealand dollar remained stable, reflecting expectations.

Since August, New Zealand's central bank has reduced the official cash rate by 75 basis points, recognizing that inflation has returned to the target band of 1% to 3%, approaching the 2% midpoint. The bank is expected to further cut rates in the coming year to support an economy adversely impacted by high interest rates.

ASB Bank senior economist Mark Smith mentioned that ASB anticipates a 50 basis point cut at the central bank's final meeting in November 2024, noting that "risks are tilted to more front-loaded policy easing."

Despite the progress, the central bank has not yet resolved the issue of non-tradeable inflation, which Statistics New Zealand reported at 4.9% in the third quarter, a decrease from 5.4% in the previous quarter.