New Zealand inflation edged above target in Q4, reinforcing the RBNZ’s decision to pause further rate cuts.
Summary:
Q4 CPI rose 0.6%, lifting annual inflation to 3.1%
Outcome exceeded market and RBNZ expectations
Domestic costs led gains, including power, rents and rates
Non-tradeable inflation remained elevated at 3.5%
Data supports RBNZ’s signal that easing cycle is ending
New Zealand inflation picked up in the December quarter, pushing annual price growth slightly above the central bank’s target band and reinforcing the Reserve Bank’s recent decision to signal an end to its easing cycle. Data from Statistics New Zealand showed consumer prices rose 0.6% over the quarter, lifting annual inflation to 3.1%. Both outcomes came in marginally above market expectations.
The acceleration was driven largely by domestic cost pressures rather than imported inflation. Electricity prices, local authority charges and housing rents were the main contributors to the quarterly increase, underscoring ongoing stickiness in household costs. While inflation remains well below its 2022 peak, the data marked another sequential rise, highlighting that disinflation has stalled in recent quarters.
The result exceeded the Reserve Bank of New Zealand’s November forecast, which had pencilled in annual inflation at 2.7% for the quarter. At that meeting, the RBNZ signalled that the bulk of monetary easing had likely run its course, citing tentative signs of economic recovery alongside inflation sitting at the top of its target range. The central bank has delivered 325 basis points of rate cuts since August 2024, including a 25bp reduction at its most recent meeting, taking the cash rate to 2.25%.
A key area of focus in the data was non-tradeable inflation, which rose at an annual pace of 3.5%. Non-tradeable inflation captures prices driven mainly by domestic factors such as housing, utilities, council rates and local services, rather than global supply chains or exchange rates. It is closely watched by the RBNZ because it provides a clearer signal of underlying inflation persistence and domestic demand pressures. Elevated non-tradeable inflation suggests price pressures remain embedded within the local economy, making inflation harder to bring sustainably back to target.
Looking ahead, policymakers face a more complex backdrop. Global uncertainty around US trade policy and ongoing geopolitical tensions continue to influence inflation expectations, while domestic political dynamics are also coming into focus following the announcement of a general election later this year. With inflation now edging above target and core domestic pressures proving sticky, the latest CPI report strengthens the case for the RBNZ to remain firmly on hold in the near term as it assesses whether inflation will ease back toward 2% as expected.
