NZ inflation data signals RBNZ may cut rate.

New Zealand’s Consumer Price Index (CPI) data for the fourth quarter of 2024, released on Tuesday, showed inflation continued to moderate, in line with expectations and could set the stage for a rate cut by the Reserve Bank of New Zealand (RBNZ).

A 0.5% quarter-on-quarter increase in consumer prices was in line with Capital Economics forecasts and the broader analyst consensus, although the RBNZ’s own forecast for a 0.4% increase was smaller. Thus, the headline rate of inflation remained flat at 2.2%, defying the RBNZ’s estimate of a modest slowdown.

Inflation was modest relative to RBNZ estimates, due entirely to the volatile trade sector, which saw prices rise 0.3% quarter-on-quarter in Q4, better than the RBNZ’s expected 0.2% decline, analysts at Capital Economics said. They pointed out.

In contrast, non-tradable goods showed their weakest quarter-on-quarter growth in four years at 0.7%, matching the central bank’s forecast.

A further indication of easing inflation, core inflation measures continued their downward trend. Trimmed average inflation fell from 2.7% in Q3 to 2.5% in Q4, and weighted average inflation fell to 2.6% from 2.8% in the same period. The quarter-on-quarter figures also reflected this softening, with the trimmed average CPI rising by 0.4% and the weighted average CPI by just 0.3%. This continued weakness suggests that underlying inflation may soon fall below the RBNZ’s target range of 1-3%.

The latest inflation figures are in line with other economic data and research, which show there is still considerable room for change in the New Zealand economy.

Capital Economics expects these conditions to warrant a significant rate cut, predicting that the RBNZ will cut rates by 50 basis points at its upcoming February meeting.

In addition, if inflation continues to fall below the bank’s expectations, Capital Economics believes there is a compelling argument for the RBNZ to implement stronger policy easing. They expect the RBNZ to eventually cut rates to 2.25%, well below the 3.00% terminal rate forecast by analyst consensus.

This article was created by AI Support and reviewed by an editor. See our T&C for more information.