“Core inflation remains comfortably back inside the RBNZ’s 1% to 3% target band,” said Westpac senior economist Satish Ranchhod.
“However, inflation is set to linger above 2% for some time. Even though domestic price pressures are continuing to ease, a pick-up in imported cost pressures is limiting the downside for overall inflation.”
The March quarter CPI release pre-dated the “Liberation Day” chaos that we saw in recent days, Ranchhod said.
However, there had still been some big changes in the global outlook that could be reflected in the Consumers Price Index (CPI).
The New Zealand dollar had fallen sharply since late last year following US President Donald Trump’s election, he said.
While it would take several months for the full impact of that drop to be felt, there could be some limited early impact on the price of some imported goods.
Annual non-tradeable inflation was expected to slow 0.7% points to 3.8%, said ANZ senior economist Miles Workman.
“That’s good progress from its peak of 6.8% (year on year) in March 2023, but still north of the 3% goldilocks zone that has historically been consistent with headline inflation around 2%,” Workman said.
“But with indicators of spare capacity (including from the labour market) continuing to signal further domestic disinflation ahead and downside growth risks intensifying, we think the RBNZ can be confident that underlying disinflation progress will continue.”
Unfortunately, the lower non-tradeable inflation would be more than offset by higher tradeable inflation, Workman said.
“The more volatile tradeable side of the CPI basket is expected to pivot from drag to driver, lifting from -1.1% [in the fourth quarter] to 0.2%.”
But the RBNZ was very likely to look through that near-term strength in tradeable inflation as it was the type of inflation that didn’t tend to stick around, Workman said.
The March-quarter CPI data was expected to see some large price movements in a few specific areas, said Westpac’s Ranchhod.
Food prices (18% of the CPI) were set to be the largest upside contributors to quarterly inflation, with prices up 1.7% over the quarter, he said.
“That’s mainly due to a large 3% rise in grocery food prices, with higher prices for items like milk and cheese as dairy prices have risen. There have also been increases in the cost of chocolate and other snack foods.”
Despite easing over the past few weeks, petrol prices (4% of the CPI) were also around 5% higher in the March quarter than they were in the final months of 2024, he said.
The March quarter also saw the annual increase in the tobacco excise tax, with cigarette and tobacco prices up 3.8%.
Balanced against those price rises, the March quarter saw a seasonal 9% fall in international airfares, which now account for 2% of the CPI, Ranchhod said.
Looking further out, the global tariff turmoil made things hard to pick.
“The inflation outlook is inherently uncertain, further complicated by pronounced uncertainty over the impacts of the worsening global trade ructions on inflation,” said ASB senior economist Mark Smith.
“We can speculate all we want but the upshot is that we just don’t know how the global trade conflict will pan out,” Smith said.
“The speed of escalation and the two central protagonists being New Zealand’s major two trading partners are not promising signs. Our sense is that the environment will worsen before it gets better.”
Not all the short-term risks were to the upside, he said.
Global oil prices were lower and there was the possibility of New Zealand being a beneficiary of the diversion of cheaper export goods originally destined for the US.
“Our gut feeling is the pending spike in 2025 peaks a bit lower than the 2.7% RBNZ pick in the third quarter.”
But the persistence of the uptick is difficult to gauge.
“We assume softer domestic inflation provides an effective dampener.”
Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.
