Downbeat data points to easing inflation, less pressure on Reserve Bank to hike rates

Selected price index data for the January provided more insight into inflation. Photo / NZME

An array of new economic data released today - including food and transport prices, consumer card spending and housing market data - has delivered fresh pieces for the inflation puzzle facing the Reserve Bank later this month.

The RBNZ makes its next interest rate decision on February 28 - with local economists divided on whether another hike is needed to tame inflation.

ANZ economists released new forecasts last Friday suggesting that two more hikes were likely - taking the OCR from its current level at 5.5 per cent to 6 per cent.

Others have argued that won’t be needed although expectations of rate cuts have been dialled back.

Today StatsNZ released its monthly Selected Price Index which includes food, transport and accommodation costs, accounting for about 45 per cent of the quarterly consumer price index.

While it showed food prices rose in January - the first monthly rise since August - the 4 per cent rate of annual increase was the lowest since November 2021.

And at 0.9 per cent, the monthly rise was also the lowest for a January month since at least 2019.

The biggest contributor to the rise was grocery food, driven by prices for boxed chocolates, 2-litre milk cartons, and fresh eggs (excluding free-range eggs).

Other items that contributed to the monthly rise included apples and legs of lamb.

Meanwhile, the broader data looked less inflationary than most economists had expected with big falls in the cost of air travel dragging it down.

“January saw the usual seasonal increase for food and accommodation prices, but this was offset by sharp falls for airfares,” said ASB senior economist Mark Smith.

“Looking through the seasonal variability it is apparent that the trend in underlying price rises is cooling.”

In the slip-stream of December’s Christmas pricing, domestic travel prices fell by 12.2 per cent in January. They were also down by 5.2 per cent across the year.

International air travel prices fell even more dramatically - off by 21.6 per cent monthly and by 31.5 per cent across the year.

While these monthly numbers were just partial data (compared to the all-important quarterly CPI inflation figure) they would be encouraging for the RBNZ, Smith said.

But there was still some way to go before they could declare victory on inflation.

“Ongoing monetary restraint will be needed to drive inflation down and deliver sub 3 per cent inflation on an ongoing basis.”

Meanwhile, ASB economists also noted that both electronic card spending data and REINZ house price data also painted a subdued picture.

Electronic Card Transactions rebounded from a weak December, but the trend remains “pretty flat”.

Falling prices for air travel helped subdue overall price inflation in January.

Retail spending (which includes core retail and the motor vehicles and fuel industry groups) rose 1.7 per cent ($114 million) in January.

Spending on durables was up $28m (1.8 per cent); apparel rose $10m (3.1 per cent); consumables were up $9.3m (0.4 per cent); fuel increased $9.1m (1.6 per cent); and motor vehicles (excluding fuel) rose $1.8m (0.9 per cent).

“While retail spending picked up in January, the longer-term trend remains weak. Despite rapid increases in the population and continued growth in prices, spending levels have effectively been tracking sideways for a year now,” said Westpac senior economist Satish Ranchhod.

REINZ housing data was a bit more upbeat, with a 1 per cent lift in January, and signs of life returning to the Auckland market.

A 1.2 per cent lift in Auckland helped power the trend, although most large regions experienced positive house price growth, ASB’s Nathaniel Keall said.

“A housing market print like this doesn’t mean the RBNZ will need to chuck another couple of hikes on the barbie or anything,” he said.

“Particularly given the lighter volume of sales over January – but further heating in the market will support the case for keeping monetary policy tighter for longer and, in turn, keep a lid on the market.”