Inflation has fallen to 2.2%, bringing it into the Reserve Bank’s target range for the first time in more than three years.
Stats NZ announced the figure for the three months to September today. It comes a week after the Reserve Bank cut the Official Cash Rate by 0.5% as it believed inflation was coming under control.
“For the first time since March 2021, annual inflation is within the Reserve Bank of New Zealand’s target band of 1 to 3%. Prices are still rising, but not as much as previously recorded,” Stats NZ’s consumer prices manager Nicola Growden said.
Higher rent was the biggest contributor to the annual inflation rate, up 4.5%, with almost a fifth of the 2.2% annual increase in the Consumer Price Index being due to rent prices.
Inflation has fallen to 2.2% for the September quarter. It’s now in the Reserve Bank’s all-important 1-3% target range. (Source: 1News)
Inflation’s rise and fall
The inflation rate spiked during and after the pandemic, peaking at 7.3% in the June 2022 quarter. With house prices also shooting up, the official interest rate was lifted to dampen demand, to a high of 5.5% in May 2023, which then lasted for more than a year.
When the Reserve Bank cut the Official Cash Rate to 4.75% last week it said that was based on its belief that inflation is now within the 1-3% target range and heading towards the 2% midpoint.
Banks are now cutting fixed and variable mortgage rates and interest rates on savings accounts.
The Reserve Bank’s monetary committee explained its decision to cut the rate last week, saying: “Economic activity in New Zealand is subdued, in part due to restrictive monetary policy. Business investment and consumer spending have been weak, and employment conditions continue to soften. Low productivity growth is also constraining activity.”
While some exporters have benefited from what it said were improved export prices, global economic growth “remains below trend”.
It pointed out the world’s two biggest economies – the United States and China – are heading for slowing growth, while geopolitical tensions “remain a significant headwind” for the world economy.
The bank said the New Zealand economy now has “excess capacity”, encouraging prices and wages to “adjust to a low-inflation economy”.
Finance Minister: ‘Era of crushing price rises is over’
Finance Minister Nicola Willis said today’s result was more good news for New Zealanders, noting it was “the first time the rate has been back within the Reserve Bank’s target range of 1% to 3% since March 2021”.
“The era of crushing price rises is now over,” she said.
“Kiwis can look forward to mortgage rate reductions and businesses will find it easier to invest and innovate with a lower cost of borrowing.”
Willis credited Government measures to restore discipline to public spending, reducing the red tape around innovation and development, and rebuilding business confidence.
“Together with the tax relief that took effect on July 31, and the FamilyBoost childcare payments that many families are now receiving, falling inflation and interest rates mean large numbers of families are now better off than they were a year ago,” she said.
“There is more work to be done to get the economy growing, but New Zealanders can be confident we are headed in the right direction.”
Labour: It’s ‘good news’ but economy still ‘sluggish’
Labour finance spokesperson Barbara Edmonds agreed today’s inflation numbers were “good news for Kiwis” but called the economy “sluggish” — with many still struggling with rising rents, rates, insurance and high unemployment.
“The Reserve Bank was already on track to get inflation back into the target band. However, non-tradable inflation is still high. Rents are up 4.5%, local authority rates and payments are up 12.2%,” Edmonds said.
She said Government decisions had created a “stagnant economy” with fewer jobs.
“Skilled workers are leaving the country in droves, and with cuts to the apprenticeship boost, the workers to fill the gaps simply won’t exist.
“New Zealand continues to grapple with a growing infrastructure deficit that has been generations in the making. If the Government was truly serious about tackling it, you would think having a skilled workforce would be critical.”
New Zealand’s economy contracted 0.2% in the June quarter and has been sitting either side of zero growth for most of the past two years.
Meanwhile, the unemployment rate in NZ was 4.6% in the most recent figures and 85,600 New Zealand citizens left the country in the year to May.
