Media365
New Zealand’s inflation accelerated to its fastest pace in more than two years during the April-June quarter, driven largely by soaring fuel prices, adding to expectations that the country’s central bank will continue raising interest rates in the coming months.
According to data released by Statistics New Zealand on Tuesday, the annual consumer price index (CPI) rose 4.1 per cent in the second quarter, up from the previous quarter and marking the highest reading in two-and-a-half years. The figure was slightly above economists’ expectation of 4.0 per cent in a Reuters poll and also exceeded the Reserve Bank of New Zealand’s (RBNZ) forecast of 3.9 per cent.
On a quarterly basis, consumer prices increased 1.5 per cent, compared with market expectations of a 1.4 per cent rise.
The stronger-than-expected inflation reading lifted the New Zealand dollar by around 0.1 per cent against the US dollar, while two-year swap rates also moved higher as investors priced in additional interest rate hikes.
Fuel remains the biggest inflation driver
The surge in fuel prices was the dominant factor behind the increase in headline inflation.
Statistics New Zealand said petrol prices jumped 27.5 per cent from a year earlier, while diesel prices soared 71.1 per cent, reflecting the sustained rise in global crude oil prices following the conflict in West Asia.
The agency estimated that without the increase in petrol and diesel prices, annual inflation would have been 2.9 per cent, highlighting the outsized impact of energy costs on consumer prices.
While imported inflation remained elevated, domestic price pressures showed signs of easing. Annual non-tradeable inflation, a measure closely watched by the central bank, slowed to 3.4 per cent, the lowest level in five years, from 3.5 per cent in the previous quarter.
More monetary tightening likely
The inflation data is likely to strengthen the case for further policy tightening by the Reserve Bank of New Zealand.
Earlier this month, the central bank raised its official cash rate to 2.50 per cent, the first increase in three years, and indicated that more rate hikes would be needed to steer inflation back towards its target range.
The RBNZ had expected inflation to cool to 3.3 per cent in the third quarter as the effect of earlier oil price shocks begins to fade. However, the latest figures suggest price pressures remain more persistent than anticipated.
Energy shocks continue to shape global inflation
New Zealand’s latest inflation figures underscore how energy prices continue to influence inflation trends worldwide.
While inflation has started easing in the United States as gasoline prices have moderated, policymakers in Europe continue to warn that inflation could stay above target well into next year despite tighter monetary policy.
For New Zealand, however, higher fuel costs remain a key challenge, suggesting the central bank’s fight against inflation is far from over.
