By Lucy Craymer
WELLINGTON (Reuters) – Inflation in New Zealand returned to the Reserve Bank of New Zealand’s target range of 1% to 3% in the third quarter, keeping the door open for the central bank to continue aggressively cutting rates.
Statistics New Zealand said on Wednesday that annual inflation dropped to 2.2% in the third quarter, within that range for the first time since March 2021. It reached 3.3% in the second quarter, having peaked at 7.3% in June 2022.
Kiwibank chief economist Jarrod Kerr said in a note that the central bank can declare victory in the war on inflation.
“The light at the end of the tunnel is burning brighter. Cost pressures are easing,” he said. “Policy settings are still restrictive, but more interest rate cuts are coming.”
The consumer price index rose 0.6% in the third quarter from the prior quarter. Economists polled by Reuters expected consumer prices to have risen 0.7% quarter-on-quarter and 2.2% year-on-year. The central bank had expected year-on-year inflation of 2.3%.
The New Zealand dollar was little changed following the release of the data, which came in close to expectations.
New Zealand’s central bank has cut the official cash rate by 75 basis points since August as it assessed that inflation had returned to its target band of 1% to 3% and was nearing the 2% mid-point.
It is expected to continue to cut rates over the coming year to stimulate the economy, which is struggling in part due to high interest rates.
ASB Bank senior economist Mark Smith said that while ASB sees the central bank cutting rates by 50 basis points at its final 2024 meeting in November, the “risks are tilted to more front loaded policy easing.”
The central bank has yet to win the battle with non-tradeable inflation which, according to Statistics New Zealand, dropped to 4.9% in the third quarter from 5.4% in the prior quarter.