For the second quarter in a row, New Zealand’s inflation rate has remained steady at 2.2%, comfortably sitting within the Reserve Bank’s target range of 1-3% for the first time in over three years.

“This marks a significant milestone,” said Nicola Growden, spokesperson for prices and deflators at Stats NZ. “Prices are still increasing, but at a much slower pace than we’ve seen in recent years. The inflation rate hit a peak of 7.3% in June 2022, so this is a considerable improvement.”

Rent Driving Inflation

One of the biggest contributors to the current inflation rate is rising rent costs, which climbed by 4.2% over the past year. Nearly 20% of the 2.2% inflation rate is attributed to rent increases.

“Annual rent inflation has remained steady, ranging between 4.2% and 4.8% over the past year,” Growden explained.

The Economy’s Bumpy Ride

While inflation appears to be stabilizing, the broader economy is still facing significant challenges. New Zealand’s GDP contracted by 1% in the September quarter, following a revised 1.1% decrease in the June quarter. This two-quarter decline officially puts the economy into recession.

To combat these issues, the Reserve Bank cut the Official Cash Rate (OCR) to 4.75% in October, with another reduction to 4.25% in November. The Reserve Bank noted that inflation had returned to its target range and was moving closer to the 2% midpoint.

Optimism for 2025

The next OCR review is scheduled for February 19, but banks have already started adjusting their rates. ANZ recently announced reductions in home loan and savings rates, signaling a shift toward easing financial pressures on households.

Kiwibank struck an optimistic tone in its latest economic outlook: “We’re entering 2025 with hope for the Kiwi economy. With interest rates continuing to decline and inflation stabilizing at 2%, the outlook is promising.”

While there’s still work to do, the combination of falling inflation and lower interest rates is providing a glimmer of hope for a stronger economic recovery.