By James Glynn
SYDNEY--Inflation pressures across New Zealand's agriculture-rich economy cooled sharply in the fourth quarter, affirming the conviction of most economists that interest rates have peaked and that the discussion should turn to the timing of interest rate cuts
Consumer prices rose 0.5% in the fourth quarter, and by 4.7% from the same period a year earlier, in line with forecasts, Stats NZ said Wednesday.
The 4.7% increase follows an annual rise of 5.6% in the third quarter and was the smallest annual increase in the CPI in more than two years.
"We're on track for inflation hitting the top end of the Reserve Bank of New Zealand's 1% to 3% inflation target band by the second half of this year. Which means rate cuts are not too far away," Kiwibank Chief Economist Jarrod Kerr said.
Despite the RBNZ ending 2023 with a very hawkish message, and signaling another rate hike, the report should see a softening in the RBNZ's tone at its next policy meeting in late February, Kerr added.
Housing and household utilities were the largest contributors to the annual inflation rate in the fourth quarter, driven mostly by higher prices for rent, construction and rates, the data showed.
Amid a boom in migration, rents increased 4.5% in the 12 months to the fourth quarter, while construction and rates increased 3.6% and 9.8%, respectively, Stats NZ said.
The next-largest contributor to the annual CPI increase was food because of rising prices for ready-to-eat food and confectionery, nuts and snacks.
The quarterly increase in the CPI was driven by higher prices for housing and household utilities, offset by lower prices for food. Prices for about one-third of all items in the CPI basket decreased in the fourth quarter, the most in more than three years, Stats NZ said.
Non-tradable inflation was 5.9% in annual terms, fueled by rent, construction and cigarettes and tobacco. Tradable inflation was 3.0% from a year earlier.
The stickiness of non-tradable inflation, which is derived from domestic sources, is set to keep the RBNZ watchful, said Abhijit Surya, economist at Capital Economics.
But it will take some comfort from the fact that underlying price pressures appear to be cooling in earnest with trimmed mean CPI rising by just 0.6% in the fourth quarter, down from 1.1% in the third quarter, he added.
Write to James Glynn at james.glynn@wsj.com
(END) Dow Jones Newswires
01-23-24 1842ET
