New Zealand’s consumer price inflation has slightly cooled in the second quarter, primarily due to a decrease in fuel costs. However, despite the easing of inflationary pressures, the Reserve Bank of New Zealand remains watchful for potential signs of rising prices across the economy.
According to Stats NZ, the consumer price index increased by 6.0% on a year-on-year basis, with the quarterly rate registering at 1.1%. This figure is slightly higher than economists’ forecast of 1.0%.
In comparison, the first quarter saw a 6.7% year-on-year increase, highlighting a notable decline in inflation pressures in countries like the U.S. and Canada.
These data bolster the recent decision by the RBNZ to keep interest rates unchanged amidst a technical recession in the country’s economy.
However, there are certain areas of concern regarding price growth that warrant the central bank’s attention.
Annual inflation was largely driven by higher food prices, particularly a surge in costs for vegetables, ready-to-eat food, and milk, cheese, and eggs, as reported by Stats NZ.
Over the year, vegetable prices rose by 23.3%, while ready-to-eat food and milk, cheese, and eggs observed increases of 9.8% and 13.8%, respectively.
Housing and Household Utilities Drive Annual Increase
The rise in housing and household utilities contributed significantly to the overall annual increase, resulting from the escalating costs of construction and rents, according to Stats NZ.
Increasing Costs in Building and Renting
In the second quarter, the costs of building a new house rose by 7.8% compared to the previous year. This increase followed a significant jump of 11.5% in the first quarter. Additionally, rents experienced a 4.2% on-year increase in the second quarter, following a 4.3% increase in the first quarter.
Inflation Remains Notably High
Satish Ranchhod, senior economist at Westpac, emphasized that while inflation is not at its peak, it remains considerably high. Measures of core inflation continue to run at approximately 6% on-year, indicating persistent underlying price pressures.
On-Hold Stance Faces Challenges
Although the RBNZ has recently indicated its intention to maintain the official interest rates at 5.50%, Ranchhod believes that this stance will be tested due to ongoing risks surrounding inflation. He predicts that these risks are unlikely to subside until late next year.
Decline in Transport Costs (Offsetting Price Increases)
Partially offsetting the price increases in the second quarter was a decrease in transport costs. Gasoline prices, in particular, witnessed a significant decline of 15.0% over the year, following an 8.3% fall in the previous quarter.
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