On Wednesday Statistics New Zealand released consumer price index (CPI) data for the December quarter. The data showed that New Zealand inflation slowed in the final three months of 2023, despite indicators of domestic price pressures remained stubbornly strong, which came in below the Reserve Bank’s expectations. As a result, it appears that policymakers are likely to hold until there’s a clearer picture of the economy.
“While this is the smallest annual rise in the CPI in over two years, it remains above the Reserve Bank of New Zealand’s target range of 1 to 3 percent,” consumers prices senior manager Nicola Growden said.
The OCR currently stands at 5.5%. While Investors are betting the RBNZ will start cutting the Official Cash Rate in the second quarter and will lower the benchmark to 4.75% by year’s end. But as I discussed recently, policymakers remained concerned about sticky core prices and most economists expect the RBNZ will delay a rate cut until the second half of 2024. In November, the central bank projected that inflation would drop below 3% in the third quarter of this year.
“Inflation continues to move in the right direction,” said Jarrod Kerr, chief economist at Kiwibank in Auckland. “The current state of play and the outlook should be sufficient to see the RBNZ pivot away from rate hikes. Rate cuts are not too far away.”
However, others remain more sanguine. “The divergence between the domestic and imported components of inflation helps to illustrate the big concerns that the RBNZ is trying to balance,”said Satish Ranchhod, senior economist at Westpac Banking Corp.
“Inflation is coming down. That will be important for stabilizing inflation expectations and means that the RBNZ will feel more comfortable keeping the OCR on hold for now.”
Westpac believes the CPI print will keep the Reserve Bank of New Zealand on hold through 2024 because inflation is “still uncomfortably high”.
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