ASB provides a glimpse into 2025’s economic climate

ASB provided a detailed forecast for New Zealand's consumer price index (CPI) in the fourth quarter, anticipating subtle shifts that could influence economic policies in 2025.
Anticipated changes in inflation rates
The fourth quarter of 2024 is expected to see a modest quarterly CPI increase of 0.4%, with the annual inflation rate cooling to 2.1%, marking the lowest since early 2021.
This projection is in alignment with the Reserve Bank of New Zealand's (RBNZ) expectations set in November.
“We expect a 0.4% quarterly increase in Q4 headline CPI, with annual CPI inflation falling to 2.1%, broadly in line with the RBNZ’s November MPS pick,” said Nick Tuffley (pictured above), chief economist at ASB.
The moderation in CPI is primarily driven by a slowdown in non-tradable inflation, particularly in the housing and services sectors, reflecting broader economic softening and increased capacity.
Tradable and non-tradable inflation dynamics
The ASB report noted a stabilisation in tradable prices in Q4, following a year of declines.
This steadying is attributed to flat pricing during the quarter, contrasted by previous quarters’ reductions.
Looking ahead, modest increases in tradable prices are expected throughout 2025, which could nudge overall inflation slightly higher by year-end.
However, non-tradable inflation is likely to continue its decline, with a 0.7% rise in Q4 leading to an annual rate of 4.5%, the lowest in three years.
Economic implications and policy forecasts
With inflation rates expected to remain within the target zone, RBNZ is positioned to adjust the OCR accordingly.
“A 50bp cut in February and 3.25% OCR endpoint is our base case scenario, but the timing and magnitude of OCR moves hinges on how events pan out,” Tuffley said.
This flexibility in monetary policy reflects the ongoing adjustments to a post-pandemic economic environment, where traditional drivers of inflation such as housing costs and service fees are becoming less influential.
Looking forward, the forecast anticipates a gradual increase in inflation throughout 2025, with non-tradable inflation likely nearing 3% by year’s end.
This shift suggests a potential mild inflationary pressure from tradable goods and services, influenced by external factors like global commodity prices and currency fluctuations.
A cautious outlook for 2025
As New Zealand navigates these subtle economic shifts, the outlook for 2025 remains cautiously optimistic, with expectations for continued policy adjustments to support a stable economic recovery, ASB reported.
Read the ASB insights here.