In the June quarter, inflation in New Zealand fell more than the Reserve Bank of New Zealand (RBNZ) had anticipated, which could prompt official cash rate (OCR) cuts as early as next month. The annual rate of inflation was 3.3 percent for the 12 months ending June 2024, slightly above the RBNZ’s target range of 1 to 3 percent. This was lower than the RBNZ’s May forecast of 3.6 percent.
Inflation Trends and Their Implications
Tradable inflation, influenced by international prices, was only 0.3 percent for the year to June, while non-tradable, domestic inflation stood at 5.4 percent, slightly higher than the RBNZ had expected. ASB Bank suggested that this data shifts the risk towards larger and earlier OCR cuts. They forecast a minimum 25 basis point cut in November, with potential for cuts starting as soon as next month, amounting to at least 50 basis points over 2024.
Kiwibank economists noted that rental inflation was at its highest since the late 1990s but suggested it might soon peak due to a weakening economic backdrop. They predicted inflation would fall below 3 percent in September, allowing the RBNZ to implement a rate cut by Christmas, or sooner if the cooling trend continues.
ANZ and Westpac have both revised their expectations, moving their forecast for an OCR cut from February to November. However, some inflationary pressures, such as those from housing and household utilities, may be less responsive to central bank policies. Key contributors to inflation included a 4.8 percent rise in rents, a 9.6 percent increase in council rates, and a 3 percent rise in new house construction costs. Insurance prices also surged by 14 percent over the year, nearly double the previous peak in June 2009.
Economic Forecasts and Central Bank Strategy
ASB Bank highlighted that when excluding insurance, council rates, and excise-affected items like tobacco and alcohol, inflation was down to 2.4 percent. They suggested these high costs could have a disinflationary impact on the broader economy, as they add significant expenses to household budgets without fueling generalized inflation.
Gareth Kiernan, chief forecaster at Infometrics, advised the RBNZ to focus on elements of inflation they can influence directly, rather than factors like rates and insurance. He described these as a “fly in the ointment” that keeps non-tradable inflation higher than expected. While Kiernan still expected a February rate cut, he noted that bringing this forward to November would require a significant shift in the RBNZ’s stance based on limited data.
ANZ’s Sharon Zollner suggested that if rates and insurance became outliers while other inflation measures fell, the RBNZ would be more inclined to focus on core inflation. This approach would provide the RBNZ with more confidence to look through these outliers and base decisions on the broader inflation trend.
Zollner observed that this was the fifth consecutive surprise in non-tradable inflation. However, she noted signs that cost pressures are diminishing, making it harder for businesses to pass on cost increases. This provided a reassuring outlook compared to the concerns the RBNZ expressed in May.
The Reserve Bank’s Flexibility
There is currently a significant gap between the RBNZ’s May forecast of no cuts until August and the predictions of economists and market pricing. However, the RBNZ is known to adjust its stance when new data emerges.

Westpac’s chief economist, Kelly Eckhold, suggested that the RBNZ might find the recent update reassuring on a headline basis. He noted that the decline in tradable inflation aligns with expectations given that supply chain disruptions have eased, the exchange rate is stable, and the retail sector is under pressure, limiting its ability to maintain margins.
This evolving scenario highlights the dynamic nature of economic forecasting and the importance of timely and accurate data in shaping monetary policy decisions. -TIN Bureau