New Zealand’s economic engine is gradually shifting into a lower gear, with the latest annual inflation data showing the third consecutive decline since its record surge last year. However, the anticipated relief for mortgage rates might need to hold its horses for now.
Read on to learn more.
Cooling inflation: the latest snapshot
The recent measure of inflation released by Stats NZ reports a 6.0% annual change in the Consumer Price Index (CPI) for the June 2023 quarter, a downturn from the blistering 32-year high last year. The quarterly inflation rate for this period stands at 1.1%.
Nicola Growden, Stats NZ’s consumer prices senior manager, noted that although prices continue to rise at rates unseen since the ‘90s, the increase is less steep than in previous quarters. The primary culprit for the persisting inflation? Your food basket.
The pricey plateau
According to data, food prices surged 12.3% annually in the June 2023 quarter, largely due to rising costs for vegetables, ready-to-eat food, milk, cheese, and eggs. According to Growden, this might prompt consumers to turn to more affordable alternatives.
Housing and household utilities were also significant contributors to the annual increase, due to escalating prices for construction and rents. “The price of building a new home has increased by more than a third in the three years from the June 2020 quarter,” Growden remarked.
What’s next for inflation and mortgage rates?
As always, making predictions is really difficult. What we know is that it’s still too early to celebrate.
While the inflation rate has dipped from 6.5% year-on-year to 6%, ANZ economists revealed that 84% of the CPI basket continues to run above the Reserve Bank’s mid-point inflation target of 2%. This indicates that extreme inflation may be fading, but overall inflation could remain above the target midpoint. “It’s a long way back to target,” said ANZ chief economist, Sharon Zollner.
What about mortgage rates then? This is a key question for many homeowners at the moment. But again, it’s nearly impossible to guess the answer.
While the declining inflation offers some respite, Westpac senior economist Satish Ranchhod warned not to hold your breath for OCR cuts and lower interest rates just yet. The CPI’s fall to 6% in the recent quarter does not guarantee inflation returning within the Reserve Bank’s 1-3% target band before late next year.
With signs of cooling demand and a potentially rebounding housing market, “we continue to see the risk that the RBNZ will need to raise the OCR again,” Ranchhod said.
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Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.