Cost-of-living crisis over? Inflation stable in June quarter, annual rate down to 3.3%

The battle against inflation may be yielding some dividends. Food prices have already fallen, and now the new Consumers Price Index has some good news for hard-pressed shoppers. Photo / file

Annual inflation fell to 3.3 per cent in the June quarter, below Reserve Bank expectations of 3.6%.

That’s lifted hopes that interest rates cuts could come as soon as next month.

“All of the remaining OCR decisions over 2024 are effectively ‘live” and cuts could start as soon as next month,” said ASB chief economist Nick Tuffley.

“Risks are strongly skewed towards at least 50bps of OCR cuts being delivered over 2024 and a 25bp cut in November looks to be the bare minimum of what the RBNZ will need to deliver.”

For the June quarter, inflation was just 0.4%, according to figures from Stats NZ today.

The 3.3% annual increase reported today followed a 4% increase in the 12 months to the March 2024 quarter.

“The 3.3% annual price increase is below what was seen during the peak in 2022, and is similar to three years ago,” Stats NZ consumers prices senior manager Nicola Growden said.

The Reserve Bank of New Zealand’s target range for consumer inflation is between 1 and 3%.

Rental prices and rates were still a sticking point.

“Today’s inflation print came out below the RBNZ’s forecast, again.,” said KiwiBank senior economist Mary Jo Vergara.

It reinforced the downward momentum we were already seeing, she said.

“We’ve seen the headline rate fall from the 7s into the 6s, 5s, 4s, and now into the 3% range. Forward-looking indicators point to further moderation in price growth. Business pricing intentions are weakening amid soft consumer and demand. And costs are easing as labour market capacity grows.”

Inflation was on track to fall below 3% in the current (September) quarter.

“Today’s progress on core inflation has us growing in confidence that the RBNZ’s 2% target will be achieved in 2025. The RBNZ should be in a position to deliver a rate cut by Christmas. We are sticking with the first cut to come in November, for now. But prospects for an even earlier cut are rising. It all depends on the data.”

Last week, the Reserve Bank shifted the tone of its language, expressing confidence inflation would move back inside its mandated 1-3% range before the end of the year.

Markets have priced in some chance of cuts in August and fully expect 25 basis point cuts in October and November. However, most economists don’t see the first cut coming until November.

Westpac currency strategist Imre Speizer said the data prompted a muted response in the currency market, the Kiwi firming 10 basis points to US60.60c and the Aussie dollar cross rate rising  to A90c from A89.85c.

He said the release was a mixed bag.”Non-tradeables rose by more than expected, and tradeables fell by more than expected.

Speizer said the data really did not fully endorse an August rate cut, and odds have reduced to 50 per cent from 60 per cent.”It does not completely take a rate cut off the table, but it does reduce the chances.”

Rents still rising

Rent prices increased 4.8% in the 12 months to the June 2024 quarter. And new house construction costs and council rates increased 3% and 9.6% respectively.

That made housing and household utilities the largest contributor to the annual inflation rate.

A big bump in insurance costs also drove inflation. Prices for insurance increased 14% in the 12 months to the June 2024 quarter.

That was nearly double the rate back in June 2009, which was the previous highest peak in the series, Growden said.

Countering that was deflation in recreation and culture.

Stats NZ recorded a 4.5% decrease for accommodation services and a 3.4% decrease for other recreational equipment and supplies prices, such as video games and pet-related products.

Non-tradeable inflation was 5.4% in the 12 months to the June 2024 quarter (compared with 5.8% in the 12 months to the March 2024 quarter), driven by prices for rent, insurance, cigarettes and tobacco.

Non-tradeable inflation measures final goods and services that did not face foreign competition and indicated domestic demand and supply conditions.

But foreign competition can influence the inputs of these goods and services.

Tradeable inflation was 0.3% in the 12 months to the June 2024 quarter. That was well down from 1.6% in the year to March 31.

Stats NZ recorded higher prices for petrol, accommodation services, and grocery food.

But lower prices for fruit and vegetables partly offset that, as did cheaper passenger transport services.

“To be clear, the downside surprise was driven in large part by tradables’ inflation,” said Abhijit Surya, Australia and New Zealand Economist for Capital Economics.

“By contrast, non-tradable inflation slowed only a little, going from 5.8% to 5.4%. However, it’s worth noting that the annual comparison belies a more marked slowdown in sequential terms,” he said.

Indeed, non-tradable prices rose by just 0.9% [in the second quarter], down sharply from 1.6% in [the first quarter].

Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.