New Zealand's inflation rate eased to 3.7% in the September quarter, down from a two-year high of 4.1% in June. The drop was largely driven by a temporary fall in fuel prices, which decreased by 6.5% during the quarter. However, underlying inflation pressures remain strong, with the Reserve Bank of New Zealand (RBNZ) targeting band at the top. The annual inflation rate is expected to rise again, potentially exceeding 4% by the end of the year.
Despite the quarterly dip, other cost pressures persisted. International airfares surged by 14.3%, the largest increase since December 2022, primarily due to higher fares to Europe and Asia. Domestic inflation also contributed, with non-tradable items like power and rates rising by 3.3% annually. Construction costs for new houses increased by 0.5% for the quarter and 3.2% for the year, driven by higher materials, labor, and fuel expenses.
Finance Minister Nicola Willis described the inflation figures as encouraging but cautioned that global events and international oil shocks could exacerbate pressures. She attributed part of the energy cost challenges to Labour's 2018 oil and gas ban, which was overturned last July. Willis emphasized the government's focus on controlling inflation to ease household budget strains.
Economists anticipate that the recent inflation relief will be short-lived, with forecasts suggesting a rise to as high as 4.5% in the December quarter. This could lead to further rate hikes by the RBNZ, with markets betting on a 25 basis point increase on October 28 and a 50% chance of another rise in December. New Zealand's inflation rate remains lower than Australia's but higher than the OECD average of 4.3%.