New Zealand’s Finance Minister says the country has ’turned the corner on interest rates’ as inflation reaches 2.2 percent, but the economy still has issues.
Inflation in New Zealand has dropped to its lowest level in over three years, with the annual figure now at 2.2 percent, according to figures released today.
The government was quick to celebrate, with ACT Party Leader David Seymour saying, “We’ve turned the corner on interest rates, and now we’re returning to normalcy on inflation.”
The Reserve Bank of New Zealand (RBNZ) cut the Official Cash Rate (OCR) by 50 basis points on Oct. 9, bringing it down to 4.75 percent.
“The era of crushing price rises is now over,” Finance Minister Nicola Willis said.
“For the first time since March 2021, annual inflation is within the Reserve Bank’s target band of one to three percent,” Statistics NZ consumer prices manager Nicola Growden said.
“Prices are still rising, but not as much as previously recorded.”
However, beneath the headline figure, the data reveals an economy still in trouble. While imported (or tradeable) inflation fell 1.6 percent for the year, domestic (non-tradeable) inflation remained at 4.9 percent, indicating that the cost of goods and services produced in New Zealand is still rising sharply.
Rents and Rates Still Rising
Rents were the largest contributor to the inflation rate, rising 4.5 percent and accounting for almost a fifth of the 2.2 percent annual increase.
Council rate hikes also drove up inflation, with an average rise across the country of 12.2 percent in the year to Sept. 30.
On the positive side, lower petrol prices, down eight percent, and a 17.9 percent drop in vegetables helped offset other price rises. Core inflation—which excludes volatile sectors such as energy and seasonal food—was 3.1 percent.
Kiwibank economists said the Reserve Bank of New Zealand (RBNZ) engineered “a long, harsh recession” to get inflation back within its target band, but it could now “declare victory in the war on inflation.”
Labour Finance spokesperson Barbara Edmonds was not as optimistic.
“Inflation is at 2.2 percent, but the rest of the economy is sluggish,” she said.
“Skilled workers are leaving the country in droves, and with cuts to the apprenticeship boost, the workers to fill the gaps simply won’t exist.”
The Green Party noted the continuing sharp rise in rents and criticised the government’s treatment of tenants.
“Housing is a human right, but this government is treating it like a game of Monopoly,” the Party’s housing spokesperson Tamatha Paul said.
“The current landlord government has only inflamed the situation by handing landlords $2.9 billion in tax cuts while punching down on renters with no cause evictions and allowing rents to spiral out of control.”
Unemployment Still An Issue
The Council of Trade Unions singled out rising unemployment as a pressing issue.
“With inflation now being back in the target band, the government has no reason to not invest in making sure that unemployment doesn’t happen. Anything else is a choice.”
Attention will now turn to the Reserve Bank, which is due to make another announcement on Nov. 27. Many economists are forecasting another five basis point cut.
Compared to New Zealand’s 2.2 percent, inflation in the United States is at 2.4 percent, Australia sits at 3.8 percent, and the OECD average is 5.4 percent.