One Small Step For Inflation, One Giant Leap From The Peak

• Kiwi consumer prices rose 0.4% over the June quarter, pulling down the annual rate to 3.3% from 4%. That's great news. But even better is the drop in core inflation, from 4.1% to 3.4%. We expect the downtrend to continue.
• Domestic inflation continues to moderate, albeit slowly. Rental inflation continues to run hot, and services inflation remains elevated. However, we suspect we're nearing a turning point as the economic backdrop deteriorates.
• Going forward, the path for policy is the path for inflation. We expect inflation to return to within the RBNZ’s 1-3% target by the September (third) quarter. It’s looking increasingly likely that the RBNZ will deliver rate relief by November. But prospects for an even earlier cut are rising.

Today's inflation print came out below the RBNZ's forecast, again. It's important to understand the swing in numbers, to the softer side. Inflation is running at 3.3%, below our forecast 3.4%, and the 3.6% of the RBNZ. There is a lot happening beneath the surface. The core measure, which strips out volatile stuff we don't want included, fell from 4.1% to 3.4%. It's not far from the RBNZ's 1-to-3% target band. Unfortunately, domestically generated inflation remains a little hot, as imported inflation is nice and cooling. Imported inflation is down to just 0.3% from 1.6% last quarter, and a hefty peak of 8.7%. Domestic inflation remains heated at 5.4%, well above our forecast, and is down from a peak of 6.8%. Within the domestic price frustrations was a lift in rents (thanks to the migration boom) to 4.8%, a spike in insurance premiums to 14%, and elevated council rates at 9.6%. It's a triple whammy of price hikes, felt by most households. Whether you own or rent, you're hurting.

Kiwi consumer prices rose 0.5% over the June quarter. Over the year, inflation decelerated to 3.3% from 4%. The annual rate of inflation continues to moderate. That’s great news. Even better is the slowdown in core inflation. Stripping out the volatile price movements in food and energy prices, underlying inflation slowed from 4.1% to 3.4%. That’s a decent move lower.

We still think inflation is on track to fall below 3% in the current (September) quarter. And today’s progress on core inflation has us growing in confidence that the RBNZ’s 2% target will be achieved in 2025. Rate relief is on its way.

View full report: https://www.kiwibank.co.nz/business-banking/thrive-hq/kiwi-economics/commentary-insights/one-small-step-for-inflation-one-giant-leap-from-the-peak/

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