Inflation preview: Still 'long way to go' as economists predict New Zealand's June quarter consumer price index

A prominent economist is warning that while New Zealand's annual inflation is likely to drop in the June quarter, there's still a "fair long way to go" and people need to tighten their belts.

The March quarter's consumer price index increased 6.7 percent in the previous 12 months, according to Stats NZ, and there are now estimates it could drop further.

Stats NZ is due to announce the June quarter's CPI data later on Wednesday, and independent economist Cameron Bagrie said he's expecting to see inflation at 6 percent or possibly even in the "high fives".

"I guess the glass-half-empty view of it is that anything with the high fives, the 6 percent inflation number is still a pretty high rate of inflation and that's a long way away from 2 percent, which is where the Reserve Bank's remit says it should be. So it turned the corner, but a fair long way to go," Bagrie told AM on Tuesday.

"I guess if you talk to the average individual out there in regard to what's their benchmark of inflation, they're not likely to tell you it's 6 percent, they're probably more likely to tell you it's about 12 percent. Why 12 percent? Because it's the everyday rate of inflation which is measured by food prices."

According to Stats NZ's June food price index, food prices rose 12.5 percent compared to the same time last year. The rise was largely driven by a lift in the cost of eggs, yoghurt, and cheese.

To get on top of inflation, Bagrie warned that 2024 is where it could be tough. This is because getting inflation from 5 percent to 2 percent means demand needs to get under supply and people need to tighten their belts, he said.

This was seen to a certain degree in the first half of 2023, Bagrie said, but a "big battle" still lies ahead.

"You're literally breaking the back of inflation, getting it from that 5 percent mark back down to 2 percent, and that's the real battle that every central bank has got around the globe at the moment and they're worried about."

Cameron Bagrie.
Cameron Bagrie. Photo credit: AM

Bagrie further warned the "economic party is over" and the economy needs to be in an underperformance phase for a couple of years.

"It doesn't mean we're going through a period of frugality, but it does mean that we need to get that realignment between demand and supply," he said. 

"We need to see demand step below what's called available supply or the economy's capacity to meet that demand, and that's just underperformance, so that's reining things in. 

"There's a whole lot of catchphrases that we use to describe where we're going over the next two to three years, but the broad story here is that the party's over and we're going through a little bit of a quiet time."

Economists at ASB also forecast annual inflation to be 5.9 percent. They also tipped quarterly inflation to rise by 0.9 percent.

"The cautionary tale is we expect non-tradable inflation – the persistent part of the CPI basket – to remain comparatively firm at 6.4 percent against the RBNZ's 6.3 percent forecast," the bank said in its Economic Weekly report

"So the extent to which the CPI will be good news to the RBNZ will also depend on the details and the confidence they give the RBNZ that underlying inflation pressures are coming down at least as quick as the RBNZ is no doubt hoping for in its Matariki reflections."