What will this week’s consumers price index data reveal about inflation?

Wednesday, 16 October 2024

The consumers price index data for the third quarter will be released on Wednesday.

Economists expect it to show annual inflation has fallen to around 2.2%.

What the data reveals could be a factor in determining the size of any potential cut to the official cash rate next month.

Economists expect this week’s consumers price index (CPI) data to show annual inflation has fallen to well within the Reserve Bank’s target band of 1% to 3%.

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

Third quarter CPI data will be released on Wednesday and, along with November’s labour market report, could be a factor in determining the size of any potential cut to the official cash rate (OCR) next month.

Economists expect the data to show annual inflation has fallen by about one percentage point, from 3.3% to 2.3%, over the last three months.

Mary Jo Vergara, Kiwibank senior economist, said consumer price growth likely accelerated over the quarter, up 0.8% from 0.4%. That should see the annual rate moderate to 2.3% from 3.3%, in line with the RBNZ’s forecasts.

Deflation on imports, led by falling petrol prices, continued to drag down overall inflation, she said.

“Domestic inflation, however, is a slow-moving beast. Services inflation is still running hot, but slowing wage growth limits further moves to the upside.”

“Inflation continues to move in the right direction. We’re closing in on the RBNZ’s 2% target, sooner than we initially forecast, and we need a full reversal of monetary policy back to neutral.”

ASB senior economist Mark Smith expected general cooling in inflationary pressures to continue and annual inflation to have dropped to 2.2%.

Underlying inflation ‒ which excludes large but temporary price fluctuations caused by things like supply issues due to bad weather ‒ was likely to be under 2% already, he said, and it was possible annual inflation would also be under 2% within the next year.

“Softening signs on the pricing side of the economy and increasing spare capacity highlight the risk of inflation settling well below 2% in the absence of further cuts to the OCR.”

At Westpac, senior economist Satish Ranchhod also predicted annual inflation of 2.2%, the lowest since 2021.

“Our forecast is slightly below the RBNZ’s forecast from their August Monetary Policy Statement, reflecting weaker fuel prices in recent months as the oil price has fallen.

“There are risks on both sides for inflation. On the downside, the downturn in consumer spending could be an even larger drag on the prices of retail goods and some services.

“However, there is also a chance we see continued strength in the prices of items like insurance and rates, which have contributed to stronger than expected non-tradable inflation over the past two years.”