New Zealand Q2 CPI rises 1.1%, slightly faster than expected

By Lucy Craymer

WELLINGTON (Reuters) – New Zealand’s consumer inflation came in slightly above expectations in the second quarter, driving swap rates higher as the market pushed out expectations for when the central bank might start cutting the cash rate.

Consumer prices rose 6.0% year-on-year in the second quarter, slower than the 6.7% increase in the first quarter, Statistics New Zealand said in a statement on Wednesday. It is now below the three-decade high of 7.3% inflation seen in the second quarter of 2022.

The consumer price index (CPI) rose 1.1% quarter-on-quarter, slower than the 1.2% rise in the first quarter. The data was just above economists’ expectations in a Reuters poll for a 1.0% rise for the quarter and a 5.9% annual rise.

Inflation is a significant challenge for the Reserve Bank of New Zealand (RBNZ) and it has responded by raising interest rates to 5.5% from a record low 0.25% in October 2021.

While it has said it now believes that the rate increases are having the desired impact on dampening inflation, it expects rates to hold at a “restrictive level” for the foreseeable future.

The New Zealand dollar rose 0.4% to US$0.6297, while the two-year swap rates rose 8 basis points to 5.415%, as markets pushed out the timing for their expectations of the first cut.

“Data reinforce that the RBNZ can not yet pat itself on the back for a job well done,” said ASB senior economist Kim Mundy. “Moreover, the RBNZ will most likely be concerned to see that price rises became more widespread in Q2.”

The main drivers of the annual inflation were food and housing prices, Statistics New Zealand said in a statement.

“With food prices up 12.3% annually, consumers may be buying cheaper alternative to keep their food bill lower,” said Nicola Growden, the prices senior manager at Statistics New Zealand.

“The price of building a new home has increased by more than a third in the three years from the June 2020 quarter,” she said.

Statistics New Zealand added that non-tradeable inflation slowed to 6.6% on year, off a 20-year high of 6.8%.

(Reporting by Lucy Craymer; Editing by Leslie Adler and Sam Holmes)