New Zealand's annual inflation rate dropped to 5.6% in September, from 6.0% in June, despite upwards pressures from high fuel prices and an annual increase to local council rates.
The so-called 'headline' inflation figure has come in significantly lower than economists and the Reserve Bank had forecast. Most economists forecast a figure in the 5.8% to 6.1% range, while the RBNZ had forecast an unchanged 6.0% figure.
Annual non-tradable inflation was at 6.3% in the September quarter, with construction costs, rental prices, and ready-to-eat food all contributing to the result. This was down from 6.6% last quarter.
This is a measure of domestic inflation in products that don't face overseas competition, however offshore input costs, such as buying fuel, can impact prices.
Quarterly non-tradable inflation was 1.7%, the hottest three months since March (1.7%) but lower than the previous September (2%).
The biggest drivers to the overall 'headline' inflation figure were an 8.8% increase in food prices, 5.3% lift in housing costs, and a 4.6% jump in transport costs, largely due to higher petrol prices.
Higher fuel costs and the purchase of new vehicles were the two largest contributors to the transport group, up 16.5% and 4.6% respectively.
The housing costs were driven higher by local council rates, which increased 9.8%, and rents which were up 1.2%.
New rates are captured once a year in the September quarter when households first see the changes set by councils, which boosts the inflation number in that quarter.
While annual headline inflation remains well above the 1% to 3% target, the fall from last quarter is meaningful.
Quarterly headline inflation was 1.8%, which was the hottest three months since last September when it was 2.2%, although a 0.3 point chunk was because of the one-off rate increases.
Of the 1.8% price increase during the quarter, transport made up one percentage point and housing another 0.5 points. Only the food and miscellaneous groups added more than 0.1 points.
105 Comments
Slowly dropping. After years of being under the target rate (which was originally just a guess anyway), maybe they are OK to let it run for a while.
Its not like the RBNZ has much control over fuel prices anyway, so raising rates isn't going to do much more in the current environment.
Yes at this rate 0.40% per quarter only 8 more quarters and will be back at around the 2% narrative for inflation. Don’t believe the RBNZ will start the the process of lowering rates again as this would just push inflation up once more, surely they have more savvy than that.
Let's be clear, still well above 1-3% band.
The question is how patient RBNZ wants to be. Wait and see it slowly come down, but higher interest rates for longer.
Or,
Increase OCR and kill off inflation - short term pain, long term gain.
I don't think there is a right answer.
I'm surprised you were surprised. Food inflation is well down in the last 3 months. Fuel is a much smaller component of people's spending than food.
Inflation has been dead for a few months. If it wasn't for the fuel subsidy removal (a one off event that the RBNZ should look through), I reckon we are back in the target band already. Of course it will take a year for that to show in the annual CPI
House insurance premiums are a killer for many people - and they’re sure to take a further quantum leap next year……
Very interesting to observe what happens to insurance markets over the short/medium term. I imagine insurance must now be priced off the market for a sizeable proportion of homeowners.
TTP
Yes, 8% net interest borrowing costs, skyrocketing insurance and Council rates, it's no wonder many view capital gain as a right.
Right now, from an investment perspective, figures just don't stack. Unless of course the investor is proud of the fact they top up the shortfall from wages.
Hardly winners......
As predicted. Today's reading will anger alot of those predicting and hoping for a blown up CPI reading, crushing their hopes of a hard-landing and economic collapse. As per my last comment on the previous CPI reading, a soft-landing becomes increasing likely as time goes on. All the "Oh but petrol will surely increase the figures" comments leading up to this reading were just noise as usual. Great news today.
Unfortunately this place is an echo-chamber for negativity. I would suggest to not read too much into the comments on here as most of them suggest we are constantly a short distance away from economic armageddon, or about to slip into some sort of new dystopia where existence will be nothing but pain. There will be a small handful of informative comments however, that aren't written by Ray Dalio enthusiasts with chronic alarmist syndrome, that can actually be quite helpful.
So we should just mope around and complain to strangers on the internet all day? Sure the world may not be what it used to be but that’s the point, things change. You have two options, go out and enjoy your life to the fullest extent as conditions allow, or become apart of those statistics you mentioned.
I’m afraid that you confuse discussion around these matters with complaining on the internet all day. If reading the comments is depressing for you then perhaps it is you that is the unhappy individual and you should find something else to do with your time .
ie take your own advice and get on with it (whatever it means to be happy for you) - otherwise you fall into the trap of being a hypocrite on these matters. Eg you complaining about other people above.
Unfortunately, your bias sentiment is feeding into your delusion trying to mask this gloom-ridden echo chamber as some place that facilitates healthy discussions. If you’re really stating the comment section of this site has anything much more to offer other than negative sentiment or complaints when things don’t turn out their way then you’re utterly delusional or being disingenuous. But you are right about one thing, as someone who doesn’t usually engage a whole lot in replies I will crack on with it as I have already used up much more time than I’d like. Have a good one 😊
The mood should hopefully shift over the next few month now that National have elected. At the moment we'll have this period of "residual dissatisfaction". A confusing mix of emotions where people are unsure if they should be happy National have been elected or still upset over the hyperbolic chaos that was Labour for 9 years.
I agree. Its possible the RBNZ agree too, but they can't signal cuts just yet.
Covid caused this inflation, through loose monetary policy, supply constraints and and demand spurt. That has all gone now, in no time we will be back to deflation. There is no point causing job losses to bring the deflation problem on quicker!
So you are praying for financial pain then? Because that is what falling interest rates mean - that the economy is weak and in trouble.
So want financial pain for many in society (job losses etc), for your own financial gain? (lower interest rates/higher house prices)
Except the RBNZ wants to get DTIs implemented. And DTI's can restrict foolish house price inflation ... f.o.r.e.v.e.r!
.... Which won't happen because the banks don't want any such restrictions on them. And as Sir John Key has a direct line to the PM ... Anyone want to bet with me that DTIs will quietly disappear?
But I thought it was the ‘DGMs’ who keep suggesting economic carnage is ahead of us - and yet your are suggesting this is what is ahead of us (eg the only reason. Central Banks will be cutting rates is because the economy is in real trouble)
So who really are the DGM? Are you sure it isn’t you by predicting falling rates just around the corner?
Stable/rasing rates indicate a strong economy - and yet you are predicting the opposite (falling rates) you doom gloom merchant. The hypocrisy always amazes me.
If you want to understand them, try watching this. It explained a lot for me.
To summarise, being rich tends to have the following effect on people:
- Increased desire to accumulate more wealth
- Increased fear of losing their wealth
- Less empathy for others
- Narcissism and an over-inflated sense of being 'self made'
- Overconfidence in their own abilities
Nobody is immune, but some are definitely worse affected by these natural tendencies than others.
Yip as Jesus said, 'what is it to gain the world but lose your own soul'. Our crazed mindset towards property investment is destroying peoples souls and as a consequence also the quality of our society.
Who cares if you are rich if your suburb/home town/city has turned into a hell hole? You have gained nothing.
From the Stats Website
Inflation rate for the September 2023 quarter:
- quarterly inflation rate was 1.8 percent
- annual inflation rate was 5.6 percent
- quarterly non-tradeable inflation rate was 1.7 percent
- annual non-tradeable inflation rate was 6.3 percent
- quarterly tradeable inflation rate was 1.8 percent
- annual tradeable inflation rate was 4.7 percent.
Still looks that Non tradable inflation is a big issue. Has been for years, even when Total inflation was in the band.
Median weekly earnings from wages and salaries increased by $84 (7.1 percent) to $1,273 in the year to the June 2023 quarter. For men, median weekly earnings increased by $80 (6.1 percent), to reach $1,400. For women, median weekly earnings increased by $85 (8.1 percent), to reach $1,140.15 https://www.stats.govt.nz/information-releases/labour-market-statistics…
The effect is more subtle than that, you can't just take off 33% from the % pay rise. You have to compare the marginal tax rate (likely 33%) to the average % paid on the previous income, which might be in the 20%s. When I modelled it for myself I think it reduced my pay rise by something like 10% - not 33%. Will vary quite significantly for different pay rates.
I didn't say it reduces your pay rise by 33%, just that it is taxed at 33%. Yes it will vary depending on where you were in the tax brackets, with the worst case being if you were right on the cutout point between brackets, then all your increase gets taxed at the higher bracket.
Also factor that Kiwisaver deductions and Student loan repayments are calculated on your gross, not net income. End result is that 7% payrise thats above CPI inflation actually isn't an inflation beating in the hand payrise.
Actually wage inflation is running at over 4%.. if you only got a 2% rise, you got swindled.. https://www.stats.govt.nz/news/annual-wage-cost-inflation-remains-at-4-….
I assume that you're having a laugh ...
Adjusting to climate change will ensure inflationary pressures remain high.
We might get imported deflation from Chinese goods for a year or so but that'll be about it (good time to buy whiteware coming soon).
Interest rates at zero is like the speed of light or absolute zero - all are theoretical. (Even an OCR at zero is extremely unlikely. Retail rates? Never.)
I wouldn't read too much into the headline figure. Domestic inflation is still well above 6% and higher than RBNZ expected; I think it was David Hargreaves who recently rightly said that this component would be more important than the headline.
With $NZ about 59 cents and falling, I don't see RBNZ failing to match Fed rate rises, which I think are likely before year end. Higher for longer OCR is still the best bet.
Wages running at 6% PA, non tradable inflation at 6.3% (which the RBNZ is targeting). Bit early for celebrating a win over inflation I think. If Jerome Powell thinks 3.7% inflation in the USA is too high and another hike is on the cards, I fail to see how we are done with rate hikes.
Could someone explain in simple terms for a simple man how quarterly inflation of 1.8% is seen as positive.
Surely if we continue at this rate inflation we will still be well in excess of the target range. ie 1.8% x 4 quarters is 7.2%?
Is the 1.8% based on the previous quarter or the corresponding quarter in the previous year?
still a long way from the target and will be sticky to come down ..weaker NZD if we are to stop increasing rates and the US looks likely as do AUS to hike... we run major trade deficits so more imported inflation costs to come .. how many more immigrants coming in?
Quarterly non-tradable inflation was 1.7%, the hottest three months since March
Quarter 3 is the quarter that local govt rates show up in the CPI - they were up 10% and made up about a third of the qtrly non-tradable increase. The removal of public transport subsidies also kicked in, and the recent spike in rents and insurance costs account for most of the rest of the increase.
The more interesting fact is that imported inflation (as badly measured by tradable CPI) disappeared this quarter apart from fuel. Note also that 60% of fuel increase was the return of excise duty.
Concur.
Housing costs (and costs associated with where you can afford to live, e.g. how much you need to commute) remain staggeringly high and even small movements have big impacts on the CPI. (But don't worry. The NACTs have a solution. No. Wait. They don't! ... It'll just get worse.)
This creates a feedback loop - just as falling rates have done so the last 40 years (eg falling rates decreased living costs, creating measured deflation,resulting in falling rates, resulting in more measured deflation).
The decades ahead could be the opposite of recent history - and this isn’t doom and gloom - it is just a change in paradigm which people appear to be very afraid of for whatever reason - usually it threatens their ego/financial position. Falling rates and rising house prices has an ego attachment for many NZers which is actual quite insane.
Welcome to economics .... it is the study of feedback loops! There are hundreds, if not thousands.
And at any point in time some are influential, most are not. But in a year's time? Who knows. But you can be fairly certain the feedback loops affecting the current economic climate will be deprecated and others will be in ascendancy.
For example, you tie interest rates to house prices. But enter a RBNZ DTI set at a sensibly restrictive level. What then? Will the loop change and it becomes house prices are affected by income rises? Maybe. Could be a good thing too? Maybe. Maybe not.
(As an aside, factor in dealing with climate change, as we must, and persistent deflation is extremely unlikely.)
I'm trying to look at it from a macro perspective - hence why I keep providing links to the US 10 year. Which to me has broken out of a 40 year cycle and now appears to have started a new cycle.
Yip well I've been arguing that we should have introduced DTI after witnessing other global property bubbles burst and while rates were dropping! (ie we should have had DTI from 2010 period onwards). Introducing them now, sure it would be wise, but its years after when they were really needed as the damage is done - too much debt realtive to economic productivity = pain.
Demand for higher wages to pay for high mortgage debt is going to keep inflationary pressures high in my opinion - until prices fall back to lower multiples of income. But that means interest rates can't fall without the NZD getting hit and find ourselves importing even more inflation.
Yet economics doesn't study anything. It has a set premise that's never changed and much has been corrupted since.
One could suggest house prices, wealth etc are tied to emotional, conditioned fears outside of economics' realm. Data, numbers, statistics can never understand why people behave the way they do. Yet it sets a direction that everyone must adhere to.
Economics like many other constructs has been influenced by the perspective of a few, who have cast that view on to the whole. Over time it has continually narrowed it's focus down to the lowest denominator, embedded itself in the psyche, and no-one is able to question the truth... IMO
People have gotten very good at deluding themselves over the last 3 years. Aided and abetted by Government propaganda. If everyone tells you 6.3% inflation is fabulous and means interest rate cuts are on the way, you are supposed to just nod your head and believe.
About what I expected.
And looking quite like an accelerating fall is imminent.
Remember what I've said about putting too much faith in bank economists' predictions? They are far from impartial. They were predicting 5.8% to 6.1% publicly whereas I'd stake good money that their analysis of their customers' accounts would be telling a completely different story.
Looking forward ... A shitty Christmas for those in retail that rely on the Christmas period to keep their heads above water. Come February / March the results will be in. March / April and the RBNZ will be making lovin' noises and banks will have given up on the higher-for-longer nonsense and some mortgagors will get heavy discounts. First OCR cut? May? June?
We'll see just how independent the RBNZ is soon. If they drop implementing DTIs then we can call 'political interference' with considerable certainty.
DTI acts as a ceiling on borrowing when interest rates fall very low as in the Covid bubble. Serviceability tests fell, people borrowed up large and got caught out when rates rose. With a decent DTI, house prices don't kick up so insanely.
As a happy side effect, the leveraged property snowball effect is cut off at the knees - buying that second or third investment property becomes dramatically harder.
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