What the inflation drop means for you

Wednesday, 17 July 2024

Annual inflation has dropped to 3.3% in the June 2024 quarter.

This was down from 4% the previous quarter.

It had fallen to levels seen about three years ago.

The consumers price index has been released by Stats NZ and shows annual inflation dropped to 3.3% in the three months to the end of June.

Inflation had fallen to levels seen about three years ago and was down from 4% the previous quarter.

The consumers price index (CPI) measures the rate of price change of goods and services purchased by New Zealand households.

Here’s what it means for you.

First home buyers

In the June quarter housing and household utilities rose 1.1%, which was influenced by home ownership increasing 0.9% and household energy increasing 2.8%.

But Infometrics chief forecaster Gareth Kiernan said the data confirmed the official cash rate will start to be cut by early 2025, and possibly even late this year, starting to make mortgage-servicing costs more affordable for potential first-home buyers.

Insurance costs had increased 14% over the year, while council rates had held at 9.6% for the last four quarters.

However Kiwibank economist Mary Jo Vergara said looking at measures excluding these costs, they were still seeing a cooling in domestic price pressures.

“It give us confidence that non-tradables inflation, while slow, is on a downward trajectory.”

Renters

Rental inflation was still running hot at 4.8% - the fastest pace since 1996.

“Pressures appear to be greatest across the South Island, with rents in the South Island up 6.8% from a year ago,” Kiernan said.

So it was not looking to flash for renters just yet.

A couple with children

Food prices and home ownership costs had likely been the biggest burden for a couple with children over the past few years.

Kiernan said with the expected OCR drop later in the year which will make interest rates more affordable will help ease pressure on families in 2025.

The downturn and stabilisation of food prices, which were at their lowest in six years will also be a welcome relief.

However, electricity costs recorded their biggest quarterly increase in 12 years, up 3%, and bigger rises are expected next year as well, Kiernan said.

Retirees

For retirees, interest rates on deposits will start to trend lower, eroding interest income, Kiernan said.

The stabilisation of food prices will also be beneficial to retiress, but other key costs faced by retirees were still rising significantly.

House and contents insurance are both up 24-25% over the last year and more than 40% over the last two years.

“We know that local government rates could jump as much as 15% in the next quarter. Higher electricity prices could also stress retiree budgets,” Kiernan said.

Employers

Economists had been watching the services category closely with Westpac chief economist Kelly Eckhold telling Stuff that those costs are slower moving, trends last for longer and they were related to the degree of wage growth.

“So we’re really looking for signs that some of those services prices are not going up as fast as they had in the last few years.”

Kiernan said the pressure on wage costs was reducing as cost-of-living pressures become less critical for employees, and the softening labour market had also reduced workers’ bargaining power.

Retail NZ chief executive Carolyn Young said retailers were “relieved” with inflation “heading in the right direction”.

“We are getting nearer to the Reserve Bank’s target range for consumer inflation of 1-3%, bringing the prospect of interest rate cuts closer. We hope this will translate into a turnaround in consumer confidence and a greater willingness to support local retail businesses.”