New Zealand Inflation Holds Steady at 2.2% in Q4

What Happened

New Zealand’s annual inflation rate remained unchanged at 2.2% in the fourth quarter of 2024, defying expectations of a slight decline to 2.1%, according to data released by Statistics New Zealand on Wednesday. Consumer prices rose 0.5% from the previous quarter, aligning with estimates.

Why It’s Important

The steady inflation reading suggests domestic price pressures are continuing to ease, but overall inflation remains above the midpoint of the Reserve Bank of New Zealand’s (RBNZ) target range. This could influence the central bank’s future monetary policy decisions as it considers further interest rate cuts.

Key Takeaways

• Annual Inflation: 2.2% (unchanged from Q3), slightly above the RBNZ’s 2.1% projection.
• Quarterly Inflation: 0.5%, matching expectations.
• Non-Tradables Inflation: Fell to 4.5% (a three-year low) from 4.9% in Q3.
• Tradables Inflation: Prices dropped 1.1% year-over-year but rose 0.3% from Q3, marking the first quarterly increase in five quarters.
• Housing Rentals and Land Taxes: Largest contributors to annual inflation.
• Gasoline Prices: Largest decline among reported price categories.

Market Reaction

New Zealand’s currency remained stable following the report, trading at 56.75 US cents at 11:38 a.m. in Wellington. The yield on two-year government bonds, which is sensitive to policy rate changes, was also little changed.

RBNZ’s Next Steps

The RBNZ has been among the most aggressive central banks in easing policy, having reduced the Official Cash Rate (OCR) by 125 basis points since August 2024 to its current level of 4.25%. Policymakers have signaled an additional 50 basis point cut at the upcoming Feb. 19 review.

Outlook for 2025

Economists remain divided on the extent of future rate cuts. While ASB Bank senior economist Mark Smith expects inflation to stay below 3% through 2025, other analysts warn that global factors, including U.S. protectionist policies, could increase the cost of imports and push inflation higher.

“Cooling non-tradable inflation increases our confidence CPI inflation will remain well below 3% over 2025, paving the way for additional OCR cuts,” Smith said. He forecasts the benchmark rate to fall to 3.25% this year.

However, signs of improving business confidence and resilience in the labor market may slow the RBNZ’s rate-cutting cycle beyond February.