(Bloomberg) — New Zealand inflation slowed in the final three months of 2023, even as indicators of domestic price pressures remained stubbornly strong, suggesting policymakers are likely to stand pat until there’s a clearer picture for the economy.
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Annual consumer-price growth eased to 4.7% from 5.6% in the third quarter, government data showed Wednesday. That matched economists’ expectations, while coming in below the Reserve Bank’s 5% forecast. Consumer prices rose 0.5% in the fourth quarter from three months prior, also in line with estimates.
The New Zealand dollar gained after the report and was trading at 61.02 US cents at 12:09 p.m. in Wellington from 60.87 cents beforehand.
The lowest inflation rate since mid-2021 indicates that the central bank has done enough tightening to achieve its 1-3% target, though policymakers have highlighted concerns over sticky core prices. Investors are betting the RBNZ will start cutting the Official Cash Rate in the second quarter and will lower the benchmark to 4.75% by year’s end. The OCR currently stands at 5.5%.
“The divergence between the domestic and imported components of inflation helps to illustrate the big concerns that the RBNZ is trying to balance,”said Satish Ranchhod, senior economist at Westpac Banking Corp.
“Inflation is coming down. That will be important for stabilizing inflation expectations and means that the RBNZ will feel more comfortable keeping the OCR on hold for now.”
Read more: New Zealand Mulls Another Rate Hike as Inflation Risks Persist
Annual non-tradables inflation, a closely watched indicator of domestic price pressures, slowed to 5.9% from 6.3% in the third quarter, the report showed. That was higher than the RBNZ’s projection of 5.7%.
Tradables prices, which reflect movements in global commodities and imported items, rose 3% in the final three months of 2023 — the slowest annual pace in almost three years.
The report comes as 2024 is increasingly seen internationally as the year of the rate cut, with the Federal Reserve poised to lead the charge for richer countries. While inflation is mostly retreating around the world, soaring shipping costs and a jump in oil prices amid geopolitical tensions are stoking worries about a revival of cost pressures.
Most economists expect the RBNZ will delay a rate cut until the second half of 2024. In November, the central bank projected that inflation would drop below 3% in the third quarter of this year.
“Inflation continues to move in the right direction,” said Jarrod Kerr, chief economist at Kiwibank in Auckland. “The current state of play and the outlook should be sufficient to see the RBNZ pivot away from rate hikes. Rate cuts are not too far away.”
Eight of the 11 main groups in the consumers price index basket increased in the quarter, the statistics agency said. The main drivers were rents and construction costs, it said.
Other Details
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Non-tradables prices rose 1.1% in the quarter; economists expected 0.8%
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Tradables prices fell 0.2% in the quarter — the first decline since 2020; economists expected a 0.1% gain
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Measures of core inflation slowed
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Consumer prices excluding food, fuel and energy rose 4.1% from a year earlier
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The 30% trimmed mean measure rose 5% from a year earlier
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NOTE: The RBNZ will publish its own core inflation measure later Wednesday
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(Updates with economist comment in 11th paragraph.)
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