Economists expect food, energy to lift Q2 CPI
New Zealand’s annual inflation rate is expected to edge higher in the June quarter, driven by rising food and energy costs, according to Westpac and ASB economists ahead of the official CPI release on July 21.
“Inflation is pushing back up towards the top of the RBNZ’s target band,” said Satish Ranchhod (pictured left), senior economist at Westpac NZ.
“We expect the June quarter inflation report will show that consumer prices rose 0.6% over the past three months. That would see the annual inflation rate rising to 2.8%, up from 2.5% in the year to March. That’s the highest inflation will have been in a year.”
ASB chief economist Mark Smith (pictured right) expects a similar result: “Our estimates suggest New Zealand consumer prices rose 0.6% in June, bang in line with expectations, with annual inflation rising to 3.1%.”
Food, power lead price gains while fuel falls
Both Westpac and ASB point to food and electricity as key contributors to inflation this quarter.
“Food prices (19% of the CPI) have risen 1.6% in recent months and are set to be the largest upside contributors to inflation this quarter,” Ranchhod said.
“There has also been a large increase in household energy prices… with electricity prices having risen 5% over the quarter. Petrol prices (4% of the CPI) have fallen around 5% over the past few months,” he added.
ASB also noted broad-based food price gains.
“Food prices [18.5% CPI weight] increased 1.2% in June (+0.5% seasonally adjusted), firmer than expected,” Smith said, with notable rises in vegetables (+10.7%), meat (+6.4%), and grocery staples such as milk (+14.3%) and cheese (+30%).
Non-tradables inflation still lingers
Westpac expects non-tradables inflation, which covers domestic goods and services, to ease gradually – but not enough to satisfy the Reserve Bank.
“We expect that domestically oriented non-tradables prices will rise 0.7% over the quarter. That would see annual non-tradables inflation slowing to 3.8%, down from 4.0% last quarter,” Ranchhod said.
“But even with that softness in domestic activity, overall non-tradables inflation has been easing only gradually due to lingering strength in administered prices, like electricity charges.”
Tradables inflation rebounds after a weak year
Imported goods prices are also expected to pick up after an extended decline.
“We expect tradable prices will rise by 0.3% in the June quarter. That would see annual tradables inflation rising to 1.2% – a stark change from the past year when tradable prices had been flat or falling,” Ranchhod said.
Core inflation still above 2%
While headline inflation is rising, core inflation – which strips out volatile food and fuel prices—is also being closely monitored by RBNZ.
“We expect that core inflation will continue to gradually ease in June but will linger above 2%,” Ranchhod said. “Some measures are likely to sit close to the top of the RBNZ’s target band. For instance, we expect that CPI excluding food, fuel and energy costs will rise to 2.8% (from 2.7% previously).”
Smith added: “Readings for core CPI inflation and inflation expectations will be pivotal.”
Watchlist: Energy, airfares, rents
ASB’s detailed preview highlights further inflation pressure points:
- Electricity and gas prices rose 1.6% in June, with electricity up 10.4% annually and gas up 16.4%.
- Rent inflation fell to 2.6% annually – “the lowest in at least a decade.”
- Airfares declined 18.7% in June, but international fares rose 7.6% month-on-month.
- Accommodation prices fell 1.4%, despite 8.5% annual growth in international tariffs.
Outlook: OCR cut still expected, but risks remain
Despite the pick-up in headline inflation, both banks still expect the RBNZ to cut the OCR by 25bp at its Aug. 20 meeting – though risks around sticky inflation remain.
“We continue to expect one further 25bp cut in this cycle, delivered at the 20 August Monetary Policy Statement,” Ranchhod said.
“We also expect 3%+ annual CPI inflation in Q3 (we currently have 3.1% yoy), but note there are good reasons to expect inflation to move lower by year end and into 2026,” Smith said.
“This is not without risk, with the possibility that the uptick in inflation proves to be more persistent than transitory.”
He also flagged that: “The RBNZ will be somewhat wary… with the possibility that the uptick in inflation proves to be more persistent… providing an unwelcome lift to inflation expectations.”
What mortgage advisers should watch
Key data due in the lead-up to the August OCR decision:
- Q2 CPI – July 21
- Labour market report – Aug. 6
- Inflation expectations survey – Aug. 7
- Global risks including US tariffs and commodity prices
If core inflation or inflation expectations come in higher than anticipated, it may test RBNZ’s confidence in further rate cuts, despite weak economic activity and subdued household demand.
For more information, read the insights from Westpac and ASB.
