Rising essentials remain, but one category changed the picture
New Zealand consumer prices fell 0.5% in August, suggesting annual inflation could peak below 3% in the third quarter, according to economic analysis released Tuesday.
The monthly decline, driven primarily by significant drops in airfare costs, brought annual inflation to 3.2%, slightly weaker than economists had expected.
Travel costs drive monthly drop
Airfare prices plunged 9.6% during August, with international flights falling 11.2% and domestic routes dropping 4.6%. Holiday accommodation costs also declined 2.3% for the month.
“The August data suggests that the trajectory for annual CPI inflation is firming but now highlights the possibility that CPI inflation may potentially peak below 3% by Q3,” ASB economists wrote.
Excluding airfares, monthly prices remained flat, indicating the broader inflationary picture remains more subdued.
Food and energy costs continue rising
Despite the overall monthly decline, essential household expenses continued to climb. Food prices increased 0.3% in August, maintaining annual food inflation at 5% – the highest level since November 2023.
Meat prices jumped 1.4% for the month, with beef prices holding above 20% annual growth and lamb surging 31.9% year-on-year. Dairy and egg prices rose 0.4% monthly, contributing to annual inflation of 11.2% in this category.
Household energy costs also climbed, with electricity and gas prices both rising 0.4%. Annual energy inflation reached 11.8%, reflecting increases of 24% for electricity and 45% for gas since the start of the decade.
Housing market pressures ease
Rent increases moderated to just 0.1% in August, marking the fourth consecutive month of minimal growth. Annual rent inflation dropped to 2.1%, the lowest level in nearly 15 years.
ASB economists noted this trend reflects subdued population growth and a becalmed housing market backdrop.
Central bank implications
The Reserve Bank of New Zealand had anticipated some uptick in headline inflation but will likely be encouraged that the peak appears lower than initially feared, Satish Ranchhod, senior economist at Westpac noted in a separate analysis.
ASB expects the Official Cash Rate to fall by a further 50 basis points to 2.5% by year-end, with potential for additional cuts in 2026 if economic conditions remain weak.
Westpac continues to forecast inflation will reach 3.1% in the September quarter, slightly above the RBNZ’s 3% projection.
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