Fall in inflation not as good as it looks

• Published date: 18 April 2024
• Author: Liam Dann
• Publication title: Northern Advocate, The (Whangarei, New Zealand)

NZ’s consumers price index increased 4 per cent in the 12 months to the March 2024 quarter, according to figures released by Stats NZ today

The 4 per cent increase follows a 4.7 per cent increase in the 12 months to the December 2023 quarter.

That was broadly in line with economic forecasts and brings NZ’s inflation rate down to the lowest level since June 2021.

But that is about where the good news ends.

“The details were not as good as the headline suggests,” said KiwiBank chief economist Jarrod Kerr.

“The decline in price pressure came from offshore. Tradeables inflation fell to 1.6 per cent (well below our forecast of 2.2 per cent). That’s great, we’ll take it.

“But domestically generated inflation surprised on the upside. Non-tradeables fell just 0.1 per cent points to 5.8 per cent. It’s not enough. The stuff the RBNZ is trying to restrain is proving to be even more frustrating.”

Non-tradeable inflation measures final goods and services that do not face foreign competition and indicates domestic demand and supply conditions.

Tradeable inflation measures final goods and services that are influenced by foreign markets.

“The devil was in the detail,” said Westpac senior economist Satish Ranchhod.

“The softness in today’s result was entirely due to lower tradeable prices, with falls for items like used cars and apparel. In contrast, non-tradeables inflation was hotter than we or the RBNZ had expected.”

Housing and household utilities were the largest contributors to the annual inflation rate, Stats NZ said.

This was due to rising prices for rent, construction of new houses, and rates.

Rent increased 4.7 per cent in the 12 months to the March 2024 quarter, while construction of new houses and rates increased 3.3 per cent and 9.8 per cent, respectively.

The next largest contributor to the annual increase was recreation and culture, due to rising prices for international accommodation, and cultural services (which includes items like subscription TV, cinema tickets, and zoo admission).

Prices for international accommodation increased 20.8 per cent in the 12 months to the March 2024 quarter, following a 6 per cent increase in the 12 months to the December 2023 quarter.

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