Have we walloped inflation? New Consumers Price Index out

Inflation took a tumble in the second quarter, falling to an annual figure of 6.0 per cent, from 6.7 per cent previously.

Fresh Consumers Price Index data has been released this morning.

Rising food prices remained the biggest problem, and were the largest contributor to the June 2023 annual inflation rate.

Vegetable prices increased 23.3 per cent in the year to June 2023.

Ready-to-eat food and milk, cheese and eggs increased 9.8 per cent and 13.8 per cent respectively.

For all goods in the CPI, prices were up 1.1 per cent on a quarterly basis.

“Prices are still increasing at rates not seen since the 1990s but are rising at a lower rate than the last few quarters,” Nicola Growden of Stats NZ said today.

After food, the next biggest contributor to the annual increase was housing and household utilities.

There, the increase was due to rising prices for construction and rent.

Prices for building a new house increased 7.8 per cent in the year to June 2023, following an 11.5 per cent increase in the year to March 2023.

”The price of building a new home has increased by more than a third in the three years from the June 2020 quarter,” Growden added.

The New Zealand dollar rallied to US63.13c from US62.76c just before the release.

In interest rates, the two-year swap rate, which has an influence on home mortgage rates, was little-changed at 5.345 per cent.

Non-tradeable inflation was 6.6 per cent in the year to June, driven by those higher prices for construction, rents and food.

Tradeable inflation was 5.2 per cent year-on-year, with higher prices for vegetables and international air transport driving the increase, and falling petrol prices partially offsetting the increases.

Non-tradeable inflation measures final goods and services not exposed to foreign competition and was an indicator of domestic demand and supply conditions.

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

Tradeable inflation measures final goods and services influenced by foreign markets.

Today’s figure compares to the 6.1 per cent forecast by the Reserve Bank.

The consensus among major bank economists was for a quarterly rise of 0.9 per cent, taking us to an annual figure of 5.9 per cent.

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

“Importantly, measures of core inflation are continuing to run at rates of around 6 per cent, and some have actually picked up in the June quarter. That points to lingering strength in underlying price pressures. Similarly, domestic inflation - aka. non-tradables inflation - remains elevated at 6.6 per cent.”

With strong and persistent underlying price pressures, inflation was unlikely to return within the RBNZ’s target band any time soon, he said.

Bank economists were optimistic the situation would improve in the months ahead as weather patterns shifted.

“The extent to which these price rises are expected to be a temporary reaction to the earlier weather events will be an important consideration for the RBNZ in terms of the policy implications,” said ASB economist Kim Mundy.

“Nevertheless, today’s data reinforce that the RBNZ can not yet pat itself on the back for a job well done.”

“At this stage, OCR cuts look a long way off and will only be contemplated when sub 3 per cent CPI inflation is in prospect, but this is unlikely to be seriously considered until well into 2024.”

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.