New Zealand will find out on Monday just how much prices climbed over the three months to June, and the country’s bank economists have already made their picks. Every one of the big four now expects annual inflation to land at 4.1 percent, a level that would keep the cost of living well above the Reserve Bank’s target and sharpen the debate about how much further interest rates need to rise.
The Consumers Price Index for the June quarter is released by Stats NZ on Monday 21 July. It is the single most important economic number the country produces, because it feeds directly into the Reserve Bank’s next decision on the Official Cash Rate and into the mortgage rates households pay. A reading of 4.1 percent would sit just below the 4.2 percent the Reserve Bank pencilled in at its last update, and more than a full percentage point above the top of its 1 to 3 percent target band.
The forecasts have actually been moving lower in recent weeks. According to interest.co.nz, ANZ and Westpac had both been picking 4.4 percent and ASB had been on 4.3 percent before all three trimmed their numbers back to 4.1 percent. BNZ moved the other way, nudging its forecast up from 4.0 percent. The convergence on a single figure is unusual and reflects how much of the recent inflation story has come down to one thing, the price of fuel.
Petrol and diesel spiked earlier in the year as conflict in the Middle East threatened supply through the Strait of Hormuz. That pressure has since eased. Petrol fell about 4 percent and diesel dropped roughly 11 percent through May as the immediate threat receded. BNZ economist Doug Steel said the fall “took the edge off very high annual inflation” in those categories. A partial reopening of the strait and a fragile calm between the United States and Iran have helped push pump prices down further since, though nobody is treating the situation as resolved.
ANZ economist Miles Workman warned that the relief may not last and that the wider damage is not undone. He said global fertiliser supply shocks flowing from the Middle East conflict, along with higher freight costs, were likely to add to global food price inflation, and cautioned that the recent easing “doesn’t fully unwind the global supply shock”. Food is the part of the basket households feel most directly, and it has kept climbing. Prices for fruit and vegetables, groceries and restaurant meals all pushed the monthly food figure up around 1.0 percent in May.
Not everything is heading in the wrong direction. Rents, one of the biggest single costs in the index, are finally softening after years of steep increases. ASB economist Mark Smith noted that “rents dipped in May and annual dwelling rental inflation looks to have hit a record low”. Airfares and accommodation also came in lower than expected, a sign that discretionary spending is under pressure as households tighten up. That split, stubborn food and fuel costs on one side and cooling housing and travel costs on the other, is exactly the picture of an economy where the squeeze is being felt unevenly.
The reason all of this matters beyond Monday’s headline is the Reserve Bank. On 8 July it lifted the Official Cash Rate by 25 basis points to 2.50 percent, its first increase in three years, reversing a long run of cuts as it moved to take the heat out of prices. The bank has said it wants inflation back at the 2 percent midpoint of its target by the middle of 2027, and a CPI number near 4 percent shows how much work is still ahead.
The next rate decision comes on 2 September, and the June quarter figure will weigh heavily on it. Financial markets are currently pricing in roughly a 60 percent chance of another quarter point rise that day. A CPI reading that comes in hotter than the forecast 4.1 percent would harden the case for a further hike. A softer number, especially in the domestically driven parts of the basket that the Reserve Bank watches most closely, would give it room to wait. Economists are already split on whether the bank moves in September or holds off until later in the year.
For households and businesses the distinction between imported and home grown inflation is more than technical. Petrol prices are set on world markets and largely outside the Reserve Bank’s control, so raising interest rates does little to change them. The bank pays far closer attention to non tradable inflation, the prices of things like rents, council rates, insurance and local services, because that is where domestic demand and wage pressure show up. If those measures are still running hot on Monday, borrowers should brace for rates staying higher for longer. If they have eased, the argument for holding the cash rate steady gets a good deal stronger.
Either way, Monday’s release will set the tone for the rest of the winter. A number in line with the banks’ 4.1 percent pick would confirm that inflation has proved stickier than many hoped a year ago, and that the return to normal is being measured in quarters rather than months.
What are you noticing at the checkout and the pump? Do you think the Reserve Bank is right to keep lifting rates, or has it gone far enough? Share your thoughts in the comments below.
This article was written by AI, briefed to report the facts, hopefully without some of the bias people bring to the job π
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