A security guard stands in the main entrance to the Reserve Bank of New Zealand located in central Wellington, New Zealand, July 3, 2017.
David Gray | Reuters
New Zealand consumer prices rose faster than expected in the first quarter as fresh food, petrol and education costs spiked, though most of the gains were temporary and markets still fully expected further cuts in interest rates.
Data from Statistics New Zealand out Thursday showed the consumer price index rose 0.9% in the March quarter from the prior quarter, above market forecasts of a 0.7% increase.
Prices were up 2.5% on a year earlier, compared to 2.2% in the fourth quarter and forecasts of 2.3%. That was still a world away from the peak of 7.3% hit in 2022 and within the Reserve Bank of New Zealand’s target range of 1% to 3%.
Petrol prices were the largest single gainer but have fallen sharply so far in the second quarter and look set to be a substantial drag on the CPI. A jump in student costs was due to the end of government grants and will also reverse this quarter.
The Stats bureau noted the annual increase in rents was the smallest since 2021, and rents are the largest item in the CPI basket. In all, less than a quarter of the basket increased by 5% or more, the smallest proportion in four years.
The figures were slightly above what the RBNZ had projected when it cut the official cash rate (OCR) in both February and April, taking it to a two-and-a-half year low of 3.5%.
The central bank also left the door wide open to further easing ahead, citing the risk of a global trade war.
Markets are still fully priced for another quarter-point cut at the next policy meeting on May 28, and rates reaching a possible floor of 2.75% by October.
Analysts at ANZ this week changed their call to include an extra easing to 2.5%, reflecting mixed economic news at home and a grimmer outlook for the world economy given U.S. President Donald Trump’s ever-changing tariff plans.
“Trade tensions and ongoing uncertainty surrounding the global growth and markets outlooks have very likely weighed on confidence across both households and businesses, eroding a key pillar of support to the recovery,” said Sharon Zollner, chief of NZ economics at ANZ.
“As a result, we think further policy support is required to keep the recovery on track.”
