Weaker-than-expected price data adds to the case for a lower OCR peak
New Zealand's latest inflation data came in weaker than markets expected in July, with falling fuel prices and softer food costs doing much of the work — a result that adds weight to bank economists' view that annual inflation has now passed its peak.
Fuel and food drag prices lower
Petrol prices fell 5.7% over the month and diesel dropped 12.1%, according to Stats NZ, marking a third consecutive monthly decline for both fuel types.
"Fuel prices decreased for a third consecutive month, following increases in March and April," prices and deflators spokesperson Nicola Growden said, adding that pump prices have now fallen back below March levels, though they remain well above where they sat in February.
Annual fuel inflation nonetheless remains steep, with petrol up 15.1% and diesel up 34.9% over the past 12 months, reflecting the lingering effects of the Middle East conflict on global oil markets.
Food prices added only a marginal 0.1% for the month, with Westpac's Satish Ranchhod pointing to a 1.4% fall in meat prices — the largest monthly drop since 2020 — as the standout mover, alongside softer prices for wine and select dairy products.
Annually, food inflation eased to 1.9%, down from a 2.5% rise in the year to June. That's the smallest annual increase since December 2024.
ASB's Mark Smith noted that "consumer caution and the subdued demand backdrop still look like it's having a moderating impact on inflation."
Airfares buck the trend
Not every category cooled. Domestic airfares jumped 20.7% in July — the largest monthly increase for that category in a July month since Stats NZ began collecting the data in 2015 — while international airfares rose 10.9%. Annually, domestic airfares were up 14% and international airfares up 3.5%.
Both monthly moves reflect seasonal patterns that typically unwind the following month, though ASB flagged ongoing global fuel costs as a factor that could sustain some upward pressure on airfares in the months ahead.
OCR path still points higher, despite the surprise
Rent inflation continued its downward drift, easing to just 0.1% annually, while household energy prices held broadly flat after a period of sharp increases — trends ASB expects to persist given the subdued housing market.
Despite the overall soft result, ASB's central view still has the OCR reaching 3.25% from its current 2.5% level, though the bank flagged "two-sided risks to our 3.25% OCR peak view" depending on how core inflation tracks over coming months.
Westpac echoed the caution, noting today's figures pose "some downside risk" to its existing forecast for the September quarter, while flagging that annual inflation is still likely to sit "well above the RBNZ target range for the remainder of this year."
Alongside the inflation data, Westpac also reported a rebound in retail spending, which rose 1.3% in July after June's fall. The bank cautioned the broader trend remains "relatively modest," with both total and core spending still below levels seen before the Middle East conflict began.
For more information, access the Stats NZ media release and read the ASB and Westpac commentaries.
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