What the unchanged inflation rate means for your mortgage

Wednesday, 22 January 2025

After nearly two years of drops, today the annual inflation rate remained the same.

Annual inflation experienced no change - so what does that mean for your mortgage?

Ahead of the release of new Consumers Price Index (CPI) data on Wednesday, with economists expecting inflation to drop to a four year low of 2.1%, four major banks lowered their short-term mortgage rates.

But Informetrics chief executive Brad Olsen said there was a fear of inflation “reacceleration” following the latest unchanged data, which would likely affect mortgage rates to some extent.

Lloyd Burr explains why there's always a difference between the Official Cash Rate (OCR) and the mortgage rates banks charge us.

“There might not be as many further cuts to mortgage rates as we move through 2025 – we’ve seen higher international borrowing costs recently, which will limit to a degree just how much further some of the longer-dated interest rates could fall,” he said.

At the end of last year, some longer term rates had increased and market expectations around the OCR had shifted, with markets now factoring in the possibility the Reserve Bank might overdo the cuts, and need to slightly raise the OCR in 2026, he said.

“It’s not a strong view, but markets are seeing a risk around hotter trend inflation based off overseas expectations.

“After people flocked to short-term mortgage rate fixes recently, more borrowers will be starting to wonder when they might want to fix their rate, rather than just thinking interest rates will continue to fall lower and lower,” he said.

Major banks had cut interest rates ahead of the inflation data being released.

Meanwhile, BNZ chief economist Mike Jones said there was nothing in the inflation numbers to alter the bank’s expectation that the Reserve Bank’s cash rate would be lowered, hence shorter-term mortgage rates would continue to fall through the first half of this year.

“We’ve got inflation close to target and an economy that is clearly still battling. It all lines up with a view that interest rates need to be brought down further to something closer to a neutral setting. That’s the journey the Reserve Bank has been on and the numbers today basically say ‘keep going’.”

Kiwibank senior economist Mary Jo Vergara said Wednesday’s data should not change the Reserve Bank’s thinking.

“If anything, domestic prices eased more than they expected back in November – so good news. There’s enough disinflation in the data to support further rate cuts from the RBNZ.

“We believe more needs to be done to stimulate the recovery into 2026 and beyond. We believe the inflation problem is no more. We believe households and businesses need rate relief. And we believe the RBNZ will be forced to deliver more, not less.”