(Bloomberg) -- New Zealand’s annual inflation was unexpectedly steady in the final three months of last year, remaining above the midpoint of the central bank’s target band even as domestic price pressures eased.
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The Consumers Price Index rose 2.2% in the fourth quarter from a year earlier, matching the pace three months earlier, Statistics New Zealand said Wednesday in Wellington. The Reserve Bank and economists’ anticipated a 2.1% gain. Consumer prices advanced 0.5% from the third quarter, matching estimates.
New Zealand’s currency was little changed immediately after the data, buying 56.75 US cents at 11:38 a.m. in Wellington. The yield on policy sensitive two-year government notes was also little changed.
Indications of a further decline in domestic price pressures may encourage the RBNZ to maintain an aggressive easing stance. Annual non-tradables inflation slowed to a three-year low of 4.5% in the fourth quarter from 4.9% in the prior period, today’s report showed. The RBNZ tipped 4.7% in its November projections.
“Cooling non-tradable inflation increases our confidence CPI inflation will remain well below 3% over 2025, paving the way for additional OCR cuts,” said Mark Smith, senior economist at ASB Bank in Auckland. He sees the benchmark reaching a low of 3.25% this year.
The RBNZ began cutting the Official Cash Rate in August and has since been one of the world’s most aggressive easers, with a cumulative 125 basis points of reductions taking it down to 4.25%. Policymakers have signaled they expect to cut by a further 50 basis points at the next review on Feb. 19.
Still, beyond February economists are divided on how much further cutting is required — particularly given signs of growing optimism among businesses and expectations unemployment won’t rise as much as previously feared. The impact of US protectionism on global inflation may also increase the cost of imports.
“We expect annual CPI inflation to marginally push higher over 2025, ending the year at around 2.5%,” said Smith. “The key swing variable is for tradable goods and services prices, which are expected to move to a mildly inflationary impact over 2025.”to 3.5%.
Housing rentals and local government land taxes were the largest contributors to the annual inflation rate, the statistics agency said. Gasoline prices recorded the largest decline.