Inflation fails to move thanks to rising rents

Wednesday, 22 January 2025

Inflation remained unchanged at 2.2% in December quarter as rising rents offset lower petrol prices.

Rent prices were the largest contributor to the 2.2% annual inflation rate, up 4.2%.

Quarterly inflation was 0.5%, with international air transport prices up 6.6% being a major contributor.

Inflation has not budged in the December quarter, with rising rents being the largest contributor to the lack of change.

The Consumer Price Index (CPI) - Stats NZ's measure of inflation - showed a 2.2% rise in the year to December, the same annual percentage increase recorded in the previous September quarter.

In the three months to June, the annual inflation rate was 3.3%.

'This is the second consecutive quarter that the annual inflation rate has been within the Reserve Bank of New Zealand's target band of 1 to 3%.' Stats NZ spokesperson Nicola Growden said.

'Prices are still rising, but not as much as previously recorded. The most recent peak was in the June 2022 quarter when the annual inflation rate reached 7.3%.'

Economists had widely predicted inflation to have hit its lowest point in four years with many expecting the CPI to fall to 2.1% for the December quarter.

The largest contributor to the annual inflation rate was rent, up 4.2%. Almost a fifth of the 2.2% annual increase was due to rent prices.

'Annual rent inflation continues to grow at a consistent rate,' Growden said.

'Between the December 2023 and 2024 quarters, annual rent inflation ranged between 4.2% and 4.8%.'

Local council rates also contributed to the inflation rate, up 12.2% in the 12 months to December.

Cigarettes and tobacco prices also rose by 7.6%, mainly due to an increase to the annual tobacco and excise tax on 1 January last year.

While the overall annual inflation rate rose by 2.2%, non-tradeable inflation - the domestic measure of the price of goods and services that do not face foreign competition - increased by 4.5%. The measure takes into account local rents and rates, for example.

Domestic inflation was partly offset by childhood education costs, down 22.8%, and domestic accommodation prices, down 9%.

Prices for petrol - considered a 'tradeable' good that is influenced by foreign competition - decreased by 9.2%, helping to offset inflation, which was helped by the Government's removal of the Auckland regional fuel tax of 10 cents per litre, on 30 June last year.

'Petrol makes up about 4% of the CPI basket,' Growden said.

'Its price fall made a significant contribution to the slower increase in the annual inflation rate in December 2024.

'If petrol was excluded, the CPI would have increased 2.7% in the 12 months to December 2024.'

While there was no change to the annual inflation rate, prices were up slightly on the previous quarter. Quarterly inflation was 0.5% in the December quarter, compared with the three months to September.

Almost a quarter of the 0.5% quarterly rise was due to prices for international air transport, up 6.6%. Other significant contributors included prices for second-hand cars, up 4.7%, as well as games, toys and hobbies, up 8.5%.

Lower prices for vegetables like tomatoes, cucumbers and capsicums, helped offset the quarterly rise. Prices for vegetables were down 11.5%.