Food prices rose in December as spikes in the price of butter, standard 2-litre milk, and olive oil pushed grocery prices upwards, but overall inflationary pressures are continuing to ease.
In Stats NZ’s latest Selected Price Index, food prices increased by 1.5% in the 12 months to December2024, up from a 1.3% rise in the November year.
Fruit and vegetable prices were up 3.1% compared to November.
Grocery food prices overall did fall monthly by 0.2%, but registered an annual 2.7% price increase.
Restaurant meals and ready-to-eat food were up 0.1% in the month, for a 3.3% annual increase.
Westpac senior economist Satish Ranchhod believes that while food prices could remain high for a period, it’s important to keep them in the context of the wider economic picture.
“It’s a problem for New Zealand consumers, but of course, we’re an exporting nation, and that boost to revenue is a bit of an offset,” Ranchhod said.
“The other thing to keep in mind is what’s happening with the exchange rate, which of course had a pretty decent drop. Again, It could be good news for exporters, but for consumers, we could see some of those price hikes come through.”
The New Zealand dollar fell to US55.5 US cents on Monday - a rate not seen since October 2022. It has since bounced back slightly to US56c.
Senior economist Satish Ranchhod from Westpac Bank said that wider inflationary pressures are beginning to ease. Photo / Greg Bowker
While prices for consumer items are continuing to rise, Ranchhod believes prices won’t reach levels seen during the peak of Covid-19.
One industry of interest he highlighted was hospitality, where prices are rising slower for takeaway food and restaurants, as they try to encourage spending from Kiwis.
Ranchhod said that while it’s not necessarily present in the latest StatsNZ data, there is a material easing to inflationary pressures which have been present for the last few years.
He thinks interest rates have been the biggest drag on household finances over the last few years, and as they potentially ease over 2025, the effect will ripple throughout the economy.
“I think that will support an improvement in household spending power, also the labour market, and gradually I’d expect to see that passing through to an improvement in retail spending and other parts of the economy.
“That should be quite a welcome relief for a lot of households who’ve been struggling with this pressure, so two ups, a few downs, but the overall picture is looking better contained.”
Reserve Bank of NZ Governor Adrian Orr is widely predicted to cut interest rates by 50 basis points at the next review in February. Photo / Mark Mitchell
Inflationary easing on track
Economists from ASB and Westpac are predicting that inflation continues to track toward 2%, likely signalling further rate cuts by the Reserve Bank at its next review in February.
ASB chief economist Nick Tuffley said the inflation outlook for 2025 remained incredibly uncertain.
“NZ consumer prices rose by 0.9% in December [ASB estimates], broadly in line with expectations, with prices up 0.5% over Q4,” Tuffley said.
“Annual inflation from the monthly measure is now trending higher, reducing the risk of annual CPI inflation settling below 2%.”
ASB is predicting a 0.4% Q4 increase (2.1% yoy) to the consumers price index (CPI), and expects another 50bp OCR cut in February and a 3.25% OCR endpoint.
Meanwhile, Westpac’s senior economist Kelly Eckhold is estimating a slightly higher increase in consumer prices of 0.5% in the December quarter.
“That’s slightly higher than we previously expected due to a sharp rise in international airfares in December,” Eckhold said, raising his prediction from 0.4%.
“We expect New Zealand’s December quarter inflation report will show that annual inflation is now tantalising close to the 2% midpoint of the RBNZ’s target band.”
Westpac expects the annual headline inflation rate to slip to 2.1%, which would be the lowest annual inflation rate since 2021.
ANZ conversely expects the headline annual inflation rate to remain unchanged at 2.2% with non-tradable inflation continuing its gradual deceleration.
ANZ chief economist Sharon Zollner said that recent weakness in the New Zealand dollar and strength in oil prices could see annual headline inflation reaccelerate for a time.
“The pace of disinflation across non-tradable and core inflation measures is ultimately going to determine where the OCR settles,” Zollner said.
“At the current juncture, indicators for the output gap suggest further disinflation across these measures will continue over 2025. The RBNZ’s task is to get these measures to eventually stabilise at a level consistent with headline inflation running at 2% beyond 2025.”
StatsNZ will reveal the next update to the CPI on January 22.
Tom Raynel is a multimedia business journalist for the Herald, covering small business and retail.
