The consumers price index increased 7.2 per cent in the 12 months to December 2022, Stats NZ said today.
It follows months of high inflation where prices frequently rose faster than at any time since the early 1990s.
The 7.2 per cent increase follows another 7.2 per cent annual increase in the September 2022 quarter, and a 7.3 per cent increase in the June 2022 quarter.
Housing and household utilities were the biggest contributors to the December 2022 annual inflation rate.
That was due to rising prices for both constructing and renting housing.
“Higher prices for ready-to-eat food, vegetables, and meat and poultry drove the overall increase in food prices,” Stats NZ said.
Transport was the next largest contributor, driven by rising prices for both international and domestic air fares.
The New Zealand dollar briefly rallied by about a quarter of a US cent on the back of the news.
In the minutes following the 10.45 am release, the Kiwi shot up to US65.23 cents from US65.0 cents. The currency later settled back to US65.08c. Wholesale interest rates were little changed.
BNZ economist Doug Steel said there was some volatility in the foreign exchange market immediately after the release, but the outcome was largely in line with expectations.
‘Encouraging’ signs despite high numbers
ANZ economists saw some promising signs in the data and lowered their expectations for the Reserve Bank OCR hike next month.
ANZ now predicted a 50 basis point hike, as opposed to 75 basis points.
“Encouragingly, non-tradables inflation was flat at 6.6 per cent (year-on-year), below our forecast of 6.9 per cent, and the RBNZ’s 7 per cent expectation,” economist Finn Robinson said. “And core inflation was encouraging as well.”
Some bank economists had predicted inflation would be below the 7.5 per cent reading the Reserve Bank forecast in November.
But on the weekend, they weren’t all convinced that would be enough to persuade the central bank to ease aggressive official cash rate (OCR) hikes.
The Council of Trade Unions today said inflation appeared to have stabilised, and quarterly inflation was back to levels seen in 2021.
“The New Zealand economy is currently one of the best performers in the world. Growth is strong, and unemployment is very low,” NZCTU president Richard Wagstaff said.
“Food and housing remain the biggest contributors to inflation. Tackling this will require long term change and investment to ensure these essentials are more affordable for people.”
The data release coincided with today’s swearing-in of Chris Hipkins as the new Prime Minister.
Hipkins has said tackling inflation and rampant cost of living increases will be among his top priorities.
At the weekend, Hipkins said his Government would focus on the immediate “bread and butter issues” affecting people.
“You shouldn’t have to be on a six-figure salary to buy a new house,” Hipkins said on the weekend.
“Today, Chris Hipkins has a baptism of inflation with the consumer price index showing inflation is stubbornly frozen at 7.2 per cent for back-to-back quarters,” Act Party leader David Seymour said.
“This inflation rate is above expectations. As other countries turn the corner, more mortgage pain is on the way because Adrian Orr has not been taken seriously,” Seymour added after the Stats NZ release. “Interest rate rises to date have had no effect.”
National Party finance spokeswoman Nicola Willis said inflation was cooling in the US, Japan, and Canada, and today’s new data was alarming.
“Inflation now has a tighter grip in New Zealand because of homegrown problems like worker shortages, higher costs for landlords being passed on to tenants, and Labour’s relentless commitment to yet more spending and borrowing,” Willis said.
“Today’s data is bad news for anyone with a mortgage or credit card bill to pay, because it suggests the Reserve Bank will have to keep hiking interest rates to get runaway prices under control.”
But with a range of domestic and global factors influencing inflation, the new PM may face a big challenge.
Just last week, Stats NZ revealed food prices jumped 1.1 per cent in December and were 11.3 per cent higher than a year earlier.
That was the biggest annual food price increase in 32 years, as fruit and vegetable prices increased 23 per cent year-on-year.
CPI inflation for the year to September was 7.2 per cent - well above expectations of about 6.5 per cent.
Domestic (non-tradable) inflation rose in the September quarter from 6.3 per cent to 6.6 per cent.
Nearly 90% of new mortgage lending in October was floating or fixed for a year or less.