The labour market and economy will be bigger predictors

Inflation remains steady in New Zealand, according to Wednesday's consumer price index. The results are another indicator of what's to come as the nation continues to battle conflicting market pressures.
Wednesday's report revealed that the CPI rose 0.5% for the quarter, or 2.2% for the 12 months ending December 2024, in line with what market participants were expecting.
Kelly Eckhold, Westpac's chief economist NZ, told New Zealand Adviser, that the market's reaction to the report is "basically neutral."
"It wasn't a surprise," he said. "It just confirms that inflation isn't really the biggest driver of the Reserve Bank and interest rate policy right now. What's going to be more important are what trends in the labour market and general economy as we go through the first half of the year."
Westpac maintains its forecast that the RBNZ will likely continue to cut interest rates at its February meeting by 50 basis points, or 0.5%.
"I don't think this data would change their minds about that," Eckhold said.
He added that the CPI data "is certainly a good sign for the economy in the sense that the Reserve Bank will remain comfortable in reducing interest rates. The message that they're telling us is that they are comfortable in bringing interest rates a bit closer to where they think is a bit more neutral or normal than it is. And that will obviously support the economy."
The Reserve Bank slashed the official cash rate to 4.25% last November, the lowest it's been since November of 2022. Some are hopeful for further cuts at the RBNZ's next meeting. The bank had previously said it was targeting an inflation rate between 1% and 3% over the medium term, with a focus on 2%. Meanwhile, New Zealand's unemployment rate is on the rise, up to 4.8% during the September 2024 quarter.
What's driving up costs?
Among the highest price increases were rents, up 4.2% for the year. For the quarter, rents grew 0.8%. Other contributors to rising prices were international travel, which grew 6.6% during the holiday travel season.
The mixture of higher rents and lower interest rates could have significant implications for New Zealand's property market.
"When rents start to go up and interest rates go down, people start to believe they can buy their own homes and get their own equity," said Rachael Thompson (pictured above), financial adviser at Auckland-based Genesis Advice.
“We've had quite a significant easing in interest rates already, since August last year and we're expecting that to continue, as we go through the first half of this year,” Eckhold said. ”That should really provide a decent tailwind to the property market in 2025.
"In respect to employment, out in the regions, things are doing a bit better," he said. “The primary sector, farming, has been doing a lot better. In the last six months, it's been quite a good climate. Dairy prices have risen, and meat prices have started to rise as well. That means out there in the regions, there's a more positive vibe compared to the larger urban areas. And the other thing, for those regional economies, is that the tourism recovery has continued. So obviously that's pretty important."