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RNZ News
21-07-2025
- Business
- RNZ News
What does inflation data mean for your home loan?
It is widely expected that the Reserve Bank will cut the official cash rate again in August, which could pull short-term rates down slightly. Photo: RNZ Inflation pushed up to its highest level in a year in the June quarter - but what is that likely to mean for interest rates? From the end of 2021, the Reserve Bank steadily hiked the official cash rate to get on top of inflation that peaked at an annual rate of more than 7 percent. But while the 2.7 percent annual increase recorded in June will be uncomfortable for those paying the higher council rates and rents that helped drive the increase, commentators say it's not likely to mean much for the future track of home loan rates or the official cash rate (OCR). The lift was in line with Reserve Bank expectations published in May, and less than some economists had forecast and the bank signalled in July. It is widely expected that the Reserve Bank will cut the official cash rate again in August, by 25 basis points (bps). That could pull short-term rates down slightly, but longer-term home loan rates tend to be more influenced by international factors. But what happens after that is less certain. Some economists expect a further drop is likely. Miles Workman, senior economist at ANZ, said the data was not a road block for further OCR cuts. "We continue to pencil in OCR cuts for August, November and February, but today's data suggest the easing we've long been expecting could arrive a little more quickly." He said the risks were tilting towards further cash rate easing being delivered sooner than the bank's expectation of cuts only at monetary policy statements, rather than the reviews in between. "We have long been expecting the RBNZ will need to cut the OCR more than they have recently been signalling ... the risk of a follow-up cut in October is now looking higher. Labour market data in early August will be important." ANZ senior economist Miles Workman. Photo: Supplied Kiwibank economists argued the official cash rate should still drop to 2.5 percent, to absorb some of the slack in the economy, particularly in the labour market. "Our best guess, incorporating the damage inflicted through the recession we're still crawling out of, has inflation falling to 1.8 percent next year. If realised, the RBNZ continues to overcook." Westpac said it was still expecting a 25bps cut in August but it would watch core inflation measures to see how strong the underlying trend in prices was beyond that. But Gareth Kiernan, chief forecaster at Infometrics, said he expected the Reserve Bank would need to stop at an OCR of 3 percent. "There were reassuring signs in there that the price pressures are more isolated than broad-based. So there's enough to suggest the bank can ease a bit more, but not massively. "Sustained weakness in labour market data in a couple of weeks' time, along with other monthly data around job ads, employment, consumer spending, and manufacturing activity would be necessary to push the bank towards further cuts in October and/or November." ASB economists expect a cut to 3 percent in August, but said there was both upside and downside risk. "After earlier tapping the monetary policy brakes, the RBNZ is expected to press the accelerator and actively provide policy support. We expect the OCR to be cut by 25bps in August to 3 percent. The inflation outlook is highly uncertain, with both upside and downside risks to this view. Persistently high inflation could see the OCR held at 3.25 percent. However, a more protracted than envisaged mid-2025 downturn in NZ economic activity, a higher NZ unemployment rate (expected to hit at least 5.3 percent in 2025), or a global economic slump could push medium-term NZ inflation lower and see the OCR move below 3 percent." Sign up for Ngā Pitopito Kōrero , a daily newsletter curated by our editors and delivered straight to your inbox every weekday.
1News
21-07-2025
- Business
- 1News
Inflation predicted to hit 12-month high for June quarter
Inflation is expected to hit a 12-month high, as surging food prices and power costs put the squeeze on household budgets. Consumer prices for the three months ended June are expected to have risen 0.6%, pushing the annual rate to 2.8% from 2.5% in March. ANZ senior economist Miles Workman said there would be familiar domestic drivers of the latest numbers. "The main drivers of quarterly inflation are expected to come from the food and housing-related groups — accelerating electricity inflation, but slowing rents and construction." High export prices for meat and dairy products have driven local food prices, and thus stoked inflation, but at the same time, they are delivering strong export returns that have supported the economy. ADVERTISEMENT ASB senior economist Mark Smith said the spike in inflation was expected to push the annual rate above 3% in the September quarter, but should prove to be temporary. "We expect the period of three percent-plus inflation to be short-lived. Forthcoming inflation expectations surveys will be critical for ascertaining whether team transitory or team persistence will win the inflation tug-o-war. "Our core judgement is that the deteriorating global outlook and the large margin of spare capacity will dampen the medium-term outlook for inflation." New Zealand currency. (Source: RBNZ discomfort Workman said the higher inflation numbers would be uncomfortable reading for the Reserve Bank (RBNZ), which would have to balance between controlling inflation and helping the economy. "The RBNZ will need to balance any upside surprise in the CPI against the signal from the high-frequency data, which is currently pointing to a stalling recovery and therefore downside risks to the medium-term inflation outlook." ADVERTISEMENT In its most recent monetary review, the RBNZ acknowledged the speed-up in inflation, but also gave a strong hint of a further rate cut at the end of August. The morning's headlines in 90 seconds, Mama Hooch rapists appeal, Ukraine's new message to Russia, and Jason Momoa's plans here. (Source: Breakfast) "If medium-term inflation pressures continue to ease as projected, the committee expects to lower the official cash rate further," the RBNZ statement said. Kiwibank economists said the issue for the RBNZ and interest rate policy was underlying inflation trends. "Encouragingly, core inflation has been trending south since hitting the 6.7% peak at the end of 2022. In the year to March 2025, core inflation fell to 2.6%." They said the economy needed lower rates and they expected another 25 basis-point cut in August. At this stage, Workman picked the cuts in August, November and early next year would take the cash rate to a low of 2.5%. ADVERTISEMENT By Gyles Beckford of
NZ Herald
20-07-2025
- Business
- NZ Herald
Rising prices a risk to Reserve Bank's effort to avoid inflation danger zone
'The balance of the volatile monthly prices came in a touch stronger than our assumptions for the month, although not enough to alter our pick.' BNZ is picking a 0.8% rise for the quarter for an annual rate of 2.9%. 'This is stronger than the RBNZ's May forecast of 0.5% [quarter on quarter] and 2.6% [year on year],' Toplis said. 'The RBNZ openly acknowledged near-term inflation upside in its July MPR [Monetary Policy Review], noting that 'inflation is expected to increase further in the June and September quarters toward the top of the MPC's inflation target band'. And the bank still confirmed an easing bias,' he said. 'So higher near-term inflation remains a risk to monitor but need not necessarily derail further reduction in the OCR if the RBNZ continues to look through the near-term pressure and focus on a subdued medium-term outlook.' Despite the risks, inflation would need to come in much worse than expected to prevent another OCR cut in August, said ANZ senior economist Miles Workman. 'The RBNZ will need to balance any upside surprise in the CPI against the signal from the high-frequency data, which is currently pointing to a stalling recovery and therefore downside risks to the medium-term inflation outlook,' he said. 'Given this, we think it would take a sizable upside surprise in the CPI to take an August cut off the table.' Westpac's Satish Ranchhod highlighted the contrasting trends for tradable inflation (internationally priced goods like petrol and food) and non-tradable inflation (domestically priced goods and services like rents and labour costs). 'In terms of the big CPI groups, we expect that domestically oriented non-tradables prices will rise 0.7% over the quarter,' he said. 'That would see annual non-tradables inflation slowing to 3.8%, down from 4% last quarter and continuing the gradual easing that we've seen over the past couple of years.' Non-tradable inflation traditionally runs higher than tradable inflation. 'Underlying that easing in domestic inflation has been softness in economic activity, which has seen muted growth in wages and service sector prices,' Ranchhod said. 'We've also seen very limited increases in both rents and the cost of new housing (the latter reflecting the more general softness in the housing market).' But even with that softness in domestic activity, overall non-tradables inflation was easing only gradually because of lingering strength in administered prices, like electricity charges, he said. Those increases meant domestic inflation is lingering above historic averages, and that would be a key concern for the RBNZ. 'On the imported front, we expect tradable prices will rise by 0.3% in the June quarter,' he said. 'That would see annual tradables inflation rising to 1.2% – a stark change from the past year when tradable prices had been flat or falling.' For the Reserve Bank, the focus would go to core inflation, which tracks underlying trends by stripping out volatile goods like petrol and food. 'Core inflation measures have been trending down in recent months and have drifted back towards or inside the RBNZ's target band,' Ranchhod said. 'We expect that core inflation will continue to gradually ease in June but will linger above 2%.' The main uncertainty around forecasts would be prices for discretionary household items, with the risks here on both sides, he said. Those items are mostly imported and include products like apparel, furnishings and other durable items. 'Household spending has been subdued in recent months, and that could have an even larger dampening impact on prices than we had assumed. However, prices for some items, like cars, can have sizeable swings on a quarter-to-quarter basis.' Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.
RNZ News
20-07-2025
- Business
- RNZ News
Inflation predicted to hit 12-month high for June quarter
High food, power and housing coasts are offset by cheaper fuel. Photo: RNZ Inflation is expected to hit a 12-month high, as surging food prices and power costs put the squeeze on household budgets. Consumer prices for the three months ended June are expected to have risen 0.6 percent, pushing the annual rate to 2.8 percent from 2.5 percent in March. ANZ senior economist Miles Workman said there would be familiar domestic drivers of the latest numbers. "The main drivers of quarterly inflation are expected to come from the food and housing-related groups - accelerating electricity inflation, but slowing rents and construction." High export prices for meat and dairy products have driven local food prices, and thus stoked inflation, but at the same time, they are delivering strong export returns that have supported the economy. ASB senior economist Mark Smith said the spike in inflation was expected to push the annual rate above three percent in the September quarter, but should prove to be temporary. "We expect the period of three percent-plus inflation to be short-lived. Forthcoming inflation expectations surveys will be critical for ascertaining whether team transitory or team persistence will win the inflation tug-o-war. "Our core judgement is that the deteriorating global outlook and the large margin of spare capacity will dampen the medium-term outlook for inflation." Workman said the higher inflation numbers would be uncomfortable reading for the Reserve Bank (RBNZ), which would have to balance between controlling inflation and helping the economy. "The RBNZ will need to balance any upside surprise in the CPI against the signal from the high-frequency data, which is currently pointing to a stalling recovery and therefore downside risks to the medium-term inflation outlook." In its most recent monetary review, the RBNZ acknowledged the speed-up in inflation, but also gave a strong hint of a further rate cut at the end of August. "If medium-term inflation pressures continue to ease as projected, the committee expects to lower the official cash rate further ," the RBNZ statement said. Kiwibank economists said the issue for the RBNZ and interest rate policy was underlying inflation trends. "Encouragingly, core inflation has been trending south since hitting the 6.7 percent peak at the end of 2022. In the year to March 2025, core inflation fell to 2.6 percent." They said the economy needed lower rates and they expected another 25 basis-point cut in August. At this stage, Workman picked the cuts in August, November and early next year would take the cash rate to a low of 2.5 percent. Sign up for Ngā Pitopito Kōrero , a daily newsletter curated by our editors and delivered straight to your inbox every weekday.
NZ Herald
06-05-2025
- Business
- NZ Herald
Economists predict 5.3% unemployment rate amid fragile economic recovery
'Given the economy is picking up, this should be around the peak.' The peak, which she and other economists were estimating at 5.3%, was a historically low one. But that was 'cold comfort' for those impacted – most likely to be young people, Māori and Pasifika, Zollner said. 'It's certainly true that recessions are not felt equally.' Westpac and ANZ economists are also picking 5.3%, the Herald reported this week. The country's 'fragile economic recovery' was under way, ANZ senior economist Miles Workman said. 'But given the typical lags, the recovery will likely take a few quarters to be reflected in the unemployment rate.' Other than Budget 2025, this is the last major piece of domestic data before the Reserve Bank's Monetary Policy Statement, Workman said. 'However, it's fair to say that changes to the RBNZ's economic forecasts are likely to end up more meaningful for the monetary policy outlook than starting-point news.' Economists at ASB see the unemployment rate landing slightly lower, at 5.2% for the quarter, and in line with the Reserve Bank's most recent forecast. It would still be the highest in just four-and-a-half years (unemployment peaked at 5.2% in late 2020 after the Covid shutdown recession). ASB senior economist Mark Smith said he expected broadly unchanged employment levels, with modest increases in the labour force pushing the unemployment rate marginally higher. 'The unsettled and uncertain local and global scene and soft domestic demand are expected to contribute to subdued hiring over much of the year until strengthening domestic activity feeds through into more hiring. 'Low growth in the labour force will dampen the peak in the unemployment rate [in the low 5s for much of 2025], with the unemployment rate subsequently easing.'
