CPI inflation falls in line with expectations to 4.7 per cent in December quarter thanks to international factors

Inflation easing, thanks in part to food prices softening after a post-cyclone spike. Photo / Getty Images

Annual inflation fell in line with economists’ expectations to 4.7 per cent in the final three months of 2023.

This was a decent improvement from the September quarter, when it sat at 5.6 per cent.

The Consumers Price Index (CPI) also rose by less than the Reserve Bank (RBNZ) anticipated in November, when it forecast inflation falling to 5 per cent in the December quarter.

Nonetheless, at 4.7 per cent, the rate remained out of the RBNZ’s 1 to 3 per cent target range.

Largely domestically-driven non-tradeable inflation continued to be sticky. It came in at 5.9 per cent, as rents, construction costs, and cigarette and tobacco prices rose.

Meanwhile, imported tradeable inflation fell to 3 per cent, partly thanks to the cost of international air travel easing.

Looking at the data more closely, the CPI rose by 0.5 per cent between the September and December quarters.

The rise was influenced by higher prices for housing and household utilities, and was offset by lower prices for food.

Stats NZ pointed out that prices for about a third of the items in the CPI basket fell in the quarter - the most in more than three years.

Westpac senior economist Satish Ranchhod believed the RBNZ would still be worried about domestically-driven inflation (which is partly influenced by international factors) being hotter than it expected in November.

“This still leaves us with a picture of ‘lower’ inflation; not low inflation,” he said.

“Rate cuts won’t be on the table in the near term.”

Kiwibank chief economist Jarrod Kerr, who has held a different view to Westpac economists for some time, was more upbeat.

“Despite some hurdles ahead (including a Red Sea induced spike in shipping costs, and a migrant fuelled rise in rents, etc), we see inflation continuing to ease back towards 2 per cent,” he said.

“We’re on track for inflation hitting the top end of the RBNZ’s 1 to 3 per cent target band by the second half of this year, which means rate cuts are not too far away.”

RBNZ chief economist Paul Conway will share the central bank’s response to the inflation figures in a speech on January 30.

This will set the scene for the RBNZ’s next monetary policy statement due out on February 28.

ANZ strategist David Croy couldn’t see Conway softening the RBNZ’s tough talk on inflation too much, as this would give the market a reason to cut interest rates too soon.

Any changes of tack in monetary policy-making also need to go through the RBNZ’s Monetary Policy Committee, which won’t meet until late February.

While Croy expected Conway to maintain the RBNZ’s hawkish stance, he believed that when the RBNZ was eventually ready to start cutting the OCR, it would move quickly.

ANZ economists forecast the first OCR cut occurring in August.

The NZ dollar rose fractionally following the release of the CPI data from 60.9 US cents to 61.0 US cents.

Jenée Tibshraeny is the Herald’s Wellington business editor, based in the Parliamentary press gallery. She specialises in government and Reserve Bank policy-making, economics and banking.