New Zealand’s headline inflation rate fell to 2.2% in the September quarter, landing comfortably within the Reserve Bank's target range for the first time since March 2021.
Statistics NZ said the consumer price index rose 0.6% during the quarter, bringing annual inflation from 3.3% to 2.2% after more than a dozen quarters above the Reserve Bank's 1%-to-3% target range.
“Prices are still rising, but not as much as previously recorded,” Stats NZ consumer prices manager Nicola Growden said.
Weaker headline inflation has been driven largely by declining prices among imported products. These ‘tradable’ prices dropped 1.6% in the past year, and 0.2% in September.
Prices for goods and services that do not face international competition continued to climb at a relatively fast pace. These ‘non-tradable’ prices were up 4.9% annually, and 1.3% during the past three months.
More than half of the quarterly inflation number was made up of an increase in local authority rates, which rose more than 12% — the largest increase since 1990.
Rate hikes are captured once a year in the consumer price index, when ratepayers see the increase, and results in an elevated data print in the September quarter.
Other large contributors to the quarterly result were food prices which rose 1.3%, tobacco and alcohol up 0.6% due to tax indexation, and actual rents which rose 0.9%.
Meanwhile, petrol prices almost offset the increase in rates with a 6.5% drop—helped by the Auckland fuel tax being scrapped—and early childhood education costs falling 22.8%.
Stats NZ has measured the price of early childhood assuming parents received the full tax rebate offered by the Coalition Government in Budget 2024. However, not all families have actually applied for the rebate.
If the FamilyBoost scheme was not included in the data, the quarterly price of early childhood education would have increased 6.9% and non-tradable inflation would have been up 1.5%.
Another policy change impacting the quarterly data was the re-introduction of a $5 charge for prescription medicines, which pushed pharmaceutical prices up 17% and added to inflation.
From last year
Annual inflation had a slightly different mix of key drivers. Almost 60% of the increase was due to housing costs, with rents up 4.5%, energy costs up 6%, and property rates 12% higher.
Alcohol and tobacco prices were up 6.3%, making up almost 20% of all headline inflation, due to indexed tax increases. Health costs were up 8.7% but not just due to the co-payment.
Insurance was the other large driver of annual inflation. Premiums rose 12.9% and contributed 17% of the overall inflation number.
In a note written prior to the data release, ASB economist Mark Smith said many of these price increases were “cost shocks in specific sectors” and underlying inflation was likely already running below 2%.
This should support the case for the central bank continuing rate cuts, although it would not provide any obvious reason to pick up the pace.
ANZ economists said getting inflation into the target band was good news for monetary policymakers, but warned it would still be too early to crack open the champagne.
“We hate to be party-poopers, but non-tradables inflation is still way too high, meaning if the sound of corks popping does resonate through the RBNZ building next week, they’ll be celebrating global disinflation progress just as much as their own,” they said.
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