Consumer Price Index preview: Is inflation finally easing? Here’s what economists are picking for CPI

There are hopes that inflation is starting to ease back but household budgets remain under pressure.

Despite a shocker of a food price inflation figure last week, economists still expect to see a solid fall in the pace of annual inflation in Consumer Price Index data due on Wednesday.

ASB, Westpac and ANZ economists are all hopeful we’ll see annual inflation fall below six per cent for the first time since December 2021.

By the numbers, the consensus is a quarterly rise of 0.9 per cent, for an annual figure of 5.9 per cent - lower than the Reserve Bank’s forecast of 6.1 per cent and down from an annual rate of 6.7 per cent in the year to March.

“While inflation is dropping back, it is not low by any stretch of the imagination,” said Westpac senior economist Satish Ranchhod.

“Importantly, with strong and persistent underlying price pressures, inflation is unlikely to return within the RBNZ’s target band any time soon.”

The fall in the annual inflation rate would be almost entirely due to petrol prices, which are 16 per cent lower than this time last year, he said.

Prices at the pump spiked in early 2022 in response to the Russia-Ukraine conflict.

However, since that time, global fuel prices have fallen and local fuel taxes have been temporarily reduced.

Also contributing to the easing in inflation were more moderate increases in the cost of purchasing a new dwelling, Ranchhod said.

“Construction costs charged higher in the early stages of the pandemic in response to low-interest rates and shortages of materials. Now, while build costs remain high, a slowdown in building activity and an easing in supply chain pressures has seen price growth slowing sharply.”

ASB senior economist Kim Mundy expects that the data will reinforce that the RBNZ is on track to bring inflation back down to target.

“However, ongoing signs of price stickiness, particularly on the non-tradeable side, will reinforce that current restrictive settings are likely to be in place for some time,” she said. “Although we believe the current 5.5 per cent OCR is the peak, we don’t expect OCR cuts until May 2024.”

ANZ economists expect some big improvements to inflation figures in the coming months as “base effects” -such as high commodity prices and local construction costs - flow out of the data.

Food prices had remained high due to pressure from “New Zealand’s poor run of weather” which was hampering production and putting a strain on transport infrastructure, impacting access to markets.

They were optimistic that the situation would improve in the coming months as weather patterns shifted.

But they are still leaning towards one more rate rise being needed in November to ensure that sticky domestic inflation is under control.

“All up, we think it‘s too early for any complacency that the fight against inflation is done and dusted, given the relative resilience of the labour market, the sizeable injection of fiscal stimulus in the next 12 months, the rapid increase in migration, a housing market showing signs of life, and a cautious turn in sentiment among consumers and businesses,” wrote Henry Russell and Miles Workman in their preview report.

Things were “definitely going the right way” they said, noting the increased capacity in the economy that businesses have reported in opinion surveys.

“But there’s a long way to go, and we suspect that squeezing that last excess inflation out of the system could be an uphill slog.”

“But that’s a story for another day; we expect next Wednesday will be a good news day for the RBNZ.”

Liam Dann is Business Editor at Large for the New Zealand Herald. He is a senior writer and columnist, as well as presenting and producing videos and podcasts. He joined the Herald in 2003.

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