WELLINGTON – New Zealand‘s consumer inflation came in slightly above expectations in the second quarter, driving swap rates higher as the market pushed out expectations for when the central bank might start cutting the cash rate.
Consumer prices rose 6 percent year-on-year in the second quarter, slower than the 6.7-percent increase in the first quarter, Statistics New Zealand said in a statement on Wednesday. It is now below the three-decade high of 7.3 percent inflation seen in the second quarter of 2022.
The consumer price index (CPI) rose 1.1 percent quarter-on-quarter, slower than the 1.2 percent rise in the first quarter. The data was just above economists’ expectations in a Reuters poll for a 1-percent rise for the quarter and a 5.9-percent annual rise.
Inflation is a significant challenge for the Reserve Bank of New Zealand (RBNZ) and it has responded by raising interest rates to 5.5 percent from a record low 0.25 percent in October 2021.
While it has said it now believes that the rate increases are having the desired impact on dampening inflation, it expects rates to hold at a “restrictive level” for the foreseeable future.
The New Zealand dollar rose 0.4 percent to US$0.6297, while the two-year swap rates rose 8 basis points to 5.415 percent, as markets pushed out the timing for their expectations of the first cut.
“Data reinforce that the RBNZ can not yet pat itself on the back for a job well done,” said ASB senior economist Kim Mundy. “Moreover, the RBNZ will most likely be concerned to see that price rises became more widespread in Q2.”
The main drivers of the annual inflation were food and housing prices, Statistics New Zealand said in a statement.
“With food prices up 12.3 percent annually, consumers may be buying cheaper alternative to keep their food bill lower,” said Nicola Growden, the prices senior manager at Statistics New Zealand.
“The price of building a new home has increased by more than a third in the three years from the June 2020 quarter,” she said.
Statistics New Zealand added that non-tradeable inflation slowed to 6.6 percent on year, off a 20-year high of 6.8 percent.
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