Recent figures show inflation has risen to a 12-month high, pushing the annual rate to 2.7%.
Stats NZ data shows the consumer price index rose 0.5% in the June quarter, taking the annual rate to 2.7%.
Key factors contributing to the inflation increase include surging food, power and housing costs, offset by cheaper fuel.
The spike is not expected to halt at least one more Reserve Bank (RBNZ) rate cut.
Consumer prices for the three months ended June were expected to have risen 0.6%.
Economists believe inflation will edge above the Reserve Bank’s 1.3% target band by September, but then ease.
Earlier this morning ANZ senior economist Miles Workman said there would be familiar domestic drivers of the latest numbers.
“The main drivers of quarterly inflation are expected to come from the food and housing-related groups – accelerating electricity inflation, but slowing rents and construction.”
High export prices for meat and dairy products have driven local food prices, and thus stoked inflation, but at the same time, they are delivering strong export returns that have supported the economy.
ASB senior economist Mark Smith said the spike in inflation was expected to push the annual rate above three percent in the September quarter, but should prove to be temporary.
“We expect the period of three percent-plus inflation to be short-lived. Forthcoming inflation expectations surveys will be critical for ascertaining whether team transitory or team persistence will win the inflation tug-o-war.
“Our core judgement is that the deteriorating global outlook and the large margin of spare capacity will dampen the medium-term outlook for inflation.”
RBNZ discomfort
Workman said the higher inflation numbers would be uncomfortable reading for the Reserve Bank (RBNZ), which would have to balance between controlling inflation and helping the economy.
“The RBNZ will need to balance any upside surprise in the CPI against the signal from the high-frequency data, which is currently pointing to a stalling recovery and therefore downside risks to the medium-term inflation outlook.”
In its most recent monetary review, the RBNZ acknowledged the speed-up in inflation, but also gave a strong hint of a further rate cut at the end of August.
“If medium-term inflation pressures continue to ease as projected, the committee expects to lower the official cash rate further,” the RBNZ statement said.
Kiwibank economists said the issue for the RBNZ and interest rate policy was underlying inflation trends.
“Encouragingly, core inflation has been trending south since hitting the 6.7 percent peak at the end of 2022. In the year to March 2025, core inflation fell to 2.6 percent.”
They said the economy needed lower rates and they expected another 25 basis-point cut in August.
At this stage, Workman picked the cuts in August, November and early next year would take the cash rate to a low of 2.5 percent.
