INDUSTRY NEWSNEW ZEALANDNEWS

New Zealand inflation figures remain stubbornly high

The latest New Zealand Consumer Price Index readings indicate the Reserve Bank of New Zealand is likely to opt for a 0.75 per cent increase to the cash rate when it meets next, a leading economist says.

The latest inflation figures show the CPI remained unchanged at 7.2 per cent in the final three months of 2023.

Rises in the cost of rent and building a new house were two of the key drivers behind the CPI remaining high.

CoreLogic New Zealand’s Chief Property Economist, Kelvin Davidson said that while the figures were lower than the RBNZ’s previous predictions, they were still “worryingly high”.

He said that they meant it was likely the RBNZ would opt for an interest rate hike on the higher end of the spectrum.

“Indeed, on balance, today’s figures will probably curtail any talk of ‘only’ a 0.5 per cent official cash rate
increase on 22 February, and shore up the chances of a 0.75 per cent rise – unless next week’s official
labour market figures turn out to be very weak,” Mr Davidson said.

He said that while an increase of this magnitude was largely expected, it would still pile the pressure on households.

“Although this wouldn’t tend to change the mortgage rates path too much, given that a 0.75 per cent OCR rise had already been signalled and ‘priced in’ by the financial markets, it certainly won’t help to
bring any respite to stretched household finances,” Mr Davidson said.

He warned that many borrowers were yet to experience the full impact of the cash rate increases.

“In other words, even if mortgage rates are close to, or at a peak, this doesn’t change the fact that it’s still expensive to be a new borrower and that many existing borrowers are yet to face up to the full extent of the rate increases already seen,” he said.

He said that it was likely that this continued pressure on mortgage rates would weigh on house prices in 2023.

“At face value, the latest CPI figures indirectly reinforce the expectation that property values have
further to fall yet.”

Values in New Zealand have already declined by around 10 per cent from their peak, and could potentially fall another 10 per cent in 2023, according to CoreLogic’s latest Best of the Best report.

New Zealand’s inflation figures came on the same day as the Australian Bureau of Statistics provided the latest update to its Consumer Price Index.

Australia’s CPI rose by 7.8 per cent in the 12 months to December, higher than the predicted 7.5 per cent, raising the likelihood that the Reserve Bank of Australia will hike the cash rate in February.

Inflation was also higher across the quarter, with CPI increasing by 1.9 per cent in the three months to December, according to the latest ABS release, higher than the predicted 1.6 per cent.

The most significant price rises were in domestic holiday travel and accommodation (up 13.3 per cent), Electricity (up 8.6 per cent), International holiday travel and accommodation (up 7.6 per cent) and New dwelling purchase by owner occupiers (up 1.7 per cent).

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Jack Needham

Jack Needham is the Digital Editor at Elite Agent

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