New Zealand’s Inflation Rate Falls to 2.2% in Third Quarter
The latest data from Statistics New Zealand has revealed that New Zealand’s annual inflation rate dropped sharply in the third quarter, returning to the central bank’s target band for the first time in over three years. Here’s a breakdown of the key points:
## Key Points:
– The annual inflation rate fell to 2.2% from 3.3% in the second quarter, meeting economists’ expectations.
– Consumer prices rose by 0.6% from the previous quarter, slightly below the 0.7% estimate of economists.
– The Reserve Bank of New Zealand (RBNZ) initiated an easing cycle in August, cutting the official cash rate (OCR) by 25 basis points. Last week, they further lowered it by 50 points to 4.75%.
– With inflation slowing significantly and the economy potentially entering a recession, policymakers are anticipated to implement another substantial rate cut at their final meeting of the year on Nov 27.
## Domestic Prices:
– RBNZ’s target is to maintain inflation around the 2% midpoint of their 1% to 3% target band. The last time inflation was within the band was in the first quarter of 2021.
– The decline in the annual inflation rate was largely driven by imported or “tradables” prices, which saw a 1.6% drop from a year earlier.
– Annual non-tradables inflation, a key indicator of domestic price pressures, decreased to 4.9% in the third quarter from 5.4% in the second quarter.
– Rents, council rates, and insurance costs were identified as the major contributors to the annual inflation rate.
Senior economist Mark Smith from ASB Bank in Auckland commented, “Pricing pressures have cooled significantly, and there is a risk of inflation dropping below 2%. Our base case scenario includes a 50 basis-point cut in November, followed by a series of 25-point cuts, with a projected 3.25% OCR endpoint. However, there are risks of more aggressive policy easing.”
Senior economist Satish Ranchhod from Westpac in Auckland added, “Domestic inflation remains high, not just due to items like council rates. The persistence of domestic prices will play a crucial role in determining the extent and pace at which inflation eases, particularly with interest rates trending downwards.”
In conclusion, the recent data on New Zealand’s inflation rate highlights the challenges faced by policymakers in balancing the need to stimulate the economy while maintaining price stability. The anticipated rate cuts and their impact on domestic prices will be crucial factors to monitor in the coming months.