Inflation has remained at an annual rate of 7.2 per cent, driven by higher prices for airfares, food and housing-related costs.
Video / NZ Herald
OPINION
Was today’s inflation data actually good news? It depends on who you ask I guess.
Domestic inflation still looks painfully embedded in the economy and with food prices still soaring it would be a stretch to say there was any good news there for new Prime Minister Christopher Hipkins.
Still, you might need a microscope to see it, but some economists did see some signs that core inflation may have peaked in today’s consumer price data.
The topline numbers remained stubbornly unmoved from the previous quarter at an annual rate of 7.2 per cent and quarterly rate of 1.4 per cent.
For the average consumer, there were no signs of respite from rising food costs and we can be almost certain that the Reserve Bank will lift interest rates again next month.
It certainly doesn’t feel like good news - and that means it will continue to be a major headwind for the Government and new Prime Minister Chris Hipkins through this election year.
But deep in the numbers, there were enough positives for some economists to revise down their expectations for next month’s OCR decision.
ANZ and Kiwibank now say the Reserve Bank will only need to lift rates by 50 basis points - as opposed to another whopping 75 basis point rise.
The New Zealand dollar briefly rallied by about a quarter of a US cent on the back of the news - usually, a sign that markets see the data pushing interest rates higher.
The currency later settled back below US65c as it became clear that there were some grounds for a lower interest rate track.
But given that we can all feel the bad news in our pockets every time we visit the supermarket - and look set to for some time yet - what exactly were those positives?
Food prices certainly continued to soar, up 1.8 per cent for the quarter and 11 per cent for the year. Excluding food costs, the CPI rose by 6.4 per cent.
Partly it is all down to expectations. The likes of the ANZ (and the Reserve Bank) had priced in ongoing rises in domestic (non-tradable) inflation.
So in that context, the fact that it was flat can be seen as a positive.
Housing and household utilities were the largest contributors to the annual inflation rate, due to rising prices for both constructing and renting housing.
But prices for building a new house increased 14 per cent in the 12 months to December 2022, compared to a 17 per cent increase in the 12 months to September.
On the international price front, the numbers were unexpectedly strong. Airfares really ruined the party.
Internationally driven price inflation (tradable) is supposed to be coming down - in theory - with oil and shipping costs coming back to earth post-pandemic.
But any relief that was delivered by lower petrol costs - down about 7 per cent - was statistically offset by a whopping 19 per cent rise in international airfares and a 14 per cent rise in domestic airfares across the quarter.
That meant tradable inflation actually rose instead of falling - up to 8.2 per cent from 8.1 per cent in the year to September 30.
The Reserve Bank can potentially look through that and focus on some of the more stable core numbers.
But it is unlikely to be happy with the data yet and will likely be looking for clearer evidence that inflation is really on the way down.
Whether it is a rise of 75 or 50 basis points in February, homeowners should brace for more interest rate pain.
The Reserve Bank Governor Adrian Orr has been hiking rates since October 2021. Photo / Mark Mitchell, Herald montage
Economists are now divided on whether the RBNZ will shift its call and lower its target for the peak rate.
A less dramatic rate rise in February would certainly represent a subtle but important victory in terms of the long-term battle to get this under control.
But the prospect of any relief from higher mortgage rates still looks some way off. There is considerable financial pain coming in the year ahead.
That also means we all need to continue to prepare for a broader economic downturn or recession.
The positive news buried in data today may move the inflation story forward, but only marginally.
We can take heart that it is not getting worse and that it still appears to be a battle that our central bankers will win.
But for those with a stake in the political game, timing is everything. It doesn’t look like the rebalancing of the economy will play through in time for the election.
In fact, we may still be in the ugliest part of it all as we head into the second half of the year.
That means the new Prime Minister faces the challenging task of selling the idea of a strong economy through the upcoming campaign.
