Annual inflation rises to 2.7% in June as local authority rates and payments, actual rentals for housing and electricity escalate

Annual inflation as measured by the Consumers Price Index (CPI) rose to 2.7% in the June quarter - but the figure was slightly lower than expected by economists.

The latest inflation figure is unlikely to deter the Reserve Bank (RBNZ) from cutting the Official Cash Rate again at its next review in August.

The increase in the annual inflation rate was driven by local authority rates and payments, rent and electricity prices.

Statistics New Zealand said CPI rose 0.5% in the June quarter. This followed a 0.9% rise in the March quarter, which had lifted the annual rate to 2.5%.

Economists had previously forecasted annual inflation for the June quarter to be 2.8% to 2.9%. This followed the release of the latest Selected Price Indexes (a monthly series that features 47% of the contributors to the quarterly CPI) last week which showed sharp increases in certain prices.

In May, the RBNZ had forecast a 2.6% annual rise but following its latest review of the Official Cash Rate (which is at 3.25%), the central bank changed its tune, saying annual inflation was likely to go to the top of its 1% to 3% range in the June and September quarters.

Annual tradable (imported) inflation rose 1.2%. Higher prices were recorded for milk, cheese and eggs – up 11.1% and overseas accommodation prepaid in New Zealand was up 9.1%.

These were partly offset by petrol and telecommunication equipment which was down 25.2%.

Non-tradable (domestic) inflation saw a 3.7% increase in the 12 months to June - its smallest increase in four years. Higher prices were recorded for local authority rates and payments and actual rents for housing. The RBNZ pays most attention to the domestic inflation and this figure was down from 4.0% in the March quarter - and very much in line with what the RBNZ expected.

Statistics New Zealand prices and deflators spokesperson Nicola Growden said although the annual inflation rate increased from the March 2025 quarter, "it remains within the Reserve Bank of New Zealand’s target band of 1 to 3% - the fourth consecutive quarter it has done so".

Local authority rates and payments is up 12.2%. Rates contributed to 13% of the 2.7% annual increase.

Growden says rates are captured once a year in the September quarter. "Next quarter we will capture changes in rates as of 1 July 2025."

Meanwhile rent prices went up 3.2% in the year to June - this increase in rents is the smallest annual increase in four years, Growden says.

Regionally, rent prices in Canterbury and the rest of the South Island had the largest annual increase, up 5.1%. Wellington had the smallest annual increase at 1.1%. 

Electricity prices were up 8.4% on an annual basis, but broken down quarterly rise was 4.9%.

"The 4.9% rise in electricity prices is the largest quarterly increase in over a decade."

The Commerce Commission sets monopoly network prices every five years and approved steady increases from April to fund infrastructure upgrades and meet rising demand.

Offsetting the increase in rates is the decrease in petrol prices. Petrol was down 8% in the 12 months to June 2025.

The average price for a litre of 91 octane fuel was $2.54 in the June quarter, down from $2.76 in the June 2024 quarter.

"Petrol made a significant downward contribution to annual CPI. The CPI excluding petrol increased 3.2%  in the 12 months to June 2025," Growden says.

Early childhood education and telecommunication equipment also made downward contributions to CPI.

Food prices were up 1.6% for the quarter and 4.2% over the year. Vegetable prices were up 10% for the quarter – and were one of the higher prices recorded for the 0.5% quarterly increase.

There were also higher prices recorded for cultural services (this is what Statistics New Zealand calls streaming services). These were up 9.5%.
 
In a note written before the release, ASB economists said they expected a “changing of the guard” among inflation drivers. Cooler domestic prices were now driving disinflation, while imported prices were heating back up.

Policymakers still see scope to cut the Official Cash Rate below the current 3.25%, as long as underlying inflation continues to cool.

Most economists expect the current inflation pressure to be short-lived, with annual inflation trending back toward 2% next year after another strong print in the September quarter.

Additional reporting by Dan Brunskill