WELLINGTON — New Zealand’s annual consumer inflation accelerated in the second quarter but was below economists’ forecasts, leading markets to narrow the odds on a rate cut next month given weakness in the broader economy.
Annual inflation came in at 2.7 percent in the second quarter, its highest level in a year, and speeding up from the 2.5 percent rate in the first quarter, Statistics New Zealand said in a statement on Monday. However, economists had forecast inflation at 2.8 percent.
The statistics agency attributed the uptick to an increase in local government taxes and housing rental prices.
On a quarter-on-quarter basis, the consumer price index rose 0.5 percent, compared with a 0.9 percent increase in the first quarter.
Economists in a Reuters poll had forecast a 0.6 percent rise for the quarter.
The New Zealand dollar dipped 0.3 percent to $0.5941 following the data release. Markets are now pricing in a 75 percent chance that the central bank will cut by 25 basis points in August, up from a 61 percent chance ahead of the data.
The Reserve Bank of New Zealand, which in May forecast annual inflation for the quarter at 2.6 percent, held interest rates steady at this month’s policy meeting partly due to near-term price risks.
It was the first pause in the RBNZ’s easing cycle that began in August 2024, a period in which it slashed rates by 225 basis points to 3.25 percent.
The uncertainty around US President Donald Trump’s tariff policies and the impact on global growth and prices have kept most policymakers, including the RBNZ, on edge.
New Zealand’s annual inflation is nudging nearer to the upper end of the central bank’s 1 percent to 3 percent target band. But economists say that with medium-term inflation expected to remain contained and considerable spare capacity in the economy, a rate cut in August remains likely.
ASB Bank senior economist Mark Smith said ASB’s core judgment is that the RBNZ will accommodate or look through the tick up in near-term inflation as the weakening global outlook and the large margin of spare capacity imply a lower medium-term inflation outlook.
