PHOTO: FILE
Restrictive monetary policy has alleviated capacity pressures in New Zealand’s economy and reduced consumer price inflation. It is anticipated that annual consumer price inflation will return to the Committee’s 1 to 3 percent target range by the end of 2024.
RBNZ welcomed decrease in inflation partly results from lower prices for goods and services imported into New Zealand. Globally, consumer price inflation has declined from 30-year highs in many advanced economies. However, services inflation is decreasing slowly, and anticipated cuts in policy interest rates continue to be delayed.
In New Zealand, labor market pressures have eased. Businesses are hiring more cautiously due to weak economic activity, while the labor supply has increased due to recent high net inward migration. Wage growth and domestic spending are slowing to levels more consistent with the Committee’s inflation target.
Despite weaker capacity pressures and an easing labor market reducing domestic inflation, this decline is moderated by sectors of the economy that are less sensitive to interest rates. These near-term factors include higher dwelling rents, insurance costs, council rates, and other domestic services price inflation. A slow decline in domestic inflation poses a risk to inflation expectations.
RBNZ projections are based on the most recent fiscal update and ‘mini-budget,’ reflecting officially available information on the Government’s fiscal intentions. The indicated lower government spending is currently contributing to weaker aggregate demand and is expected to continue doing so. Any impacts from potential changes in the forthcoming Budget, such as adjustments in government spending or private spending due to tax cuts, remain to be assessed.
Annual consumer price inflation remains above the Committee’s 1 to 3 percent target band, and components of domestic services inflation persist. The Committee agreed that monetary policy needs to remain restrictive to ensure inflation returns to target within a reasonable timeframe.
SOURCE: RBNZ