Economic News

March Inflation Exceeds RBNZ Forecasts, Rent Prices Hit Record High Since 1999

March Inflation Exceeds RBNZ Forecasts, Rent Prices Hit Record High Since 1999

New Zealand’s annual inflation rate decreased to 4% in March from 4.7% in December, even as costs for rents, house construction, and council rates continued to rise, according to Statistics NZ. The Consumer Price Index (CPI) saw a marginal increase of 0.6% in the March quarter, slightly up from the previous quarter’s 0.5% rise, marking the smallest quarterly increase since June 2021. Despite the decrease, inflation remains above the Reserve Bank of New Zealand’s (RBNZ) target range of 1% to 3%.

Statistics NZ reported that annual inflation exceeded RBNZ’s expectations, which had predicted a reduction to 3.8%. Predictions by various banks also showed expectations of higher inflation, with Westpac and Kiwibank anticipating a 4.2% rise, ASB forecasting 4.1%, ANZ expecting 4%, and BNZ the lowest at 3.9%.

The primary factors contributing to the rise in the headline inflation figure for March were higher housing and household utility costs. Rents increased by 4.7% over the past 12 months, surpassing the 4.5% increase recorded in the previous year. Additionally, house construction costs and council rates rose by 3.3% and 9.8%, respectively, with rent prices recording the highest increase since the series began in September 1999.

Recreation and culture also significantly impacted the annual headline inflation figure, driven by a surge in accommodation costs and expenses related to events, cinema tickets, and subscriptions. Accommodation prices jumped by 20.8% over the year, a steep rise from the 6% increase in December. Cultural services costs rose by 9.7% in March.

Alcohol and tobacco were another major contributor to annual inflation, with alcoholic beverages increasing by 5% and cigarettes and tobacco by 10.4%. The average price for a packet of 25 cigarettes reached $54.27 in March 2024, with a single cigarette costing $2.17, up from 93 cents a decade ago.

Domestically driven inflation, or non-tradable inflation, was recorded at 5.8% for the March quarter, higher than the RBNZ’s forecast of 5.3%. This was attributed to increased costs in rent, construction, and tobacco. Tradable inflation, largely influenced by imported goods like petrol, was reported at 1.6%, slightly above the forecast of 1.5%.

Significant increases were also seen in hospital services, which rose by 13.5%, and insurance, up by 14% since March 2023. Food prices increased by 2.4% annually, a decrease from 5.7% in the previous quarter.

The RBNZ has responded to the high inflation by raising rates since October 2021, with the Official Cash Rate (OCR) currently at 5.50%. It is anticipated that headline inflation will fall below 3% by September this year. Following the latest data, ASB suggested that the RBNZ might delay rate cuts until February 2025 due to persistent domestically-generated inflation, reinforcing the central bank’s cautious approach to monetary policy.