Economists expect inflation to be lowest in four years

Wednesday, 22 January 2025

CPI data for the December quarter will be released on Wednesday.

The data measures inflation by tracking the price of goods and services.

The rate of inflation is expected to have hit its lowest point in four years.

Economists are expecting inflation to have hit its lowest point in four years.

On Wednesday, Stats NZ will release its Consumers Price Index (CPI) data for the December quarter, which measures inflation by tracking the price of goods and services.

ASB senior economist Mark Smith said the bank expected a 0.4% quarterly increase in Q4 headline CPI, with annual CPI inflation falling to 2.1%, down from 2.2% in the September quarter.

“Risks are broadly balanced,” he said.

“The moderation in CPI inflation is driven by cooling non-tradable inflation. This predominantly reflects slowing increases in housing and services inflation that is the consequence of a pronounced period of softening economic conditions and growing spare capacity.”

Modest increases were expected for tradable prices throughout the next year which would push overall inflation slightly higher by the end of 2025.

“With inflation effectively parked within the inflation target zone, the RBNZ is well positioned to continue to promptly normalise OCR settings.

“We expect a 50 basis point February cut and a 3.25% Offical Cash Rate (OCR) by mid-2025. Our base case is that the OCR will not need to move below circa 3.25% neutral levels in 2025, but the inflation outlook remains highly uncertain and is conditional on several factors.”

Wesptac senior economist Satish Ranchhod estimated consumer prices rose by 0.5% in the December quarter.

“That’s slightly higher than we previously expected due to a sharp rise in international airfares in December,” he said.

Domestic and international airfares were up 9% and 7% respectively over the past three months.

“Our forecast for 2.1% annual inflation is in line with the RBNZ’s forecast, as is our forecast for non-tradables inflation. Overall, we don’t expect the December quarter inflation report will deliver a big surprise for the RBNZ.”

Kiwibank economists were also expecting the CPI to drop to 2.1%, with consumer prices rising 0.4%.

“We can thank imported inflation for driving headline inflation back below 3%. Indeed, today’s inflation is all homegrown,” senior economist Mary Jo Vergara said.

“We expect annual tradables to remain in negative territory at -1.3%. Fuel prices have been especially weak. According to StatsNZ, petrol prices fell more than 1% over the quarter. Providing some offset, however, will be the rise in airfares.

“Domestic inflation, in contrast, is a slow-moving beast. The good news is that it has turned.”