Consumer price index: ASB predicts CPI inflation to fall

  • 22/01/2024

ASB is predicting inflation would have fallen at the end of last year, however, it predicts cuts to interest rates aren't likely until at least the second half of 2024.

Stats NZ will release its consumer price index (CPI) on Wednesday which is a measure of inflation for New Zealand households.

ASB economists expect a 0.5 percent quarterly increase in the headline CPI over quarter 4 (September to December). However, ASB expects annual inflation to fall to 4.7 percent from December 2022 to December 2023 – the lowest since early 2021.

ASB's prediction is a tad weaker than the Reserve Bank (RBNZ) which forecasted a 0.8 percent quarterly increase and annual inflation to be five percent.

ASB senior economist Mark Smith said falls for food prices and selected consumer durables should deliver a broadly flat quarter for tradable prices.

Monthly food prices fell 0.1 percent in December 2023 compared with November 2023. It was the fourth consecutive month food prices have decreased.

Annual food price inflation was 4.8 percent in December. ASB expects this to fall below three percent by mid-2024. This will be a relief to beleaguered consumers, Smith said.

The prices of petrol, accommodation, tobacco and alcohol also eased in December which would have helped inflation track down.

"The unwinding of the price premium built up over the COVID period is expected to be the key catalyst heralding the return to sub-three percent CPI inflation by the second half of this year," Smith said.

"However, overall CPI inflation has been above the upper bound of the 1-3 percent inflation target band for close to three years now and there is still plenty of uncertainty over the inflation outlook."

Smith said the RBNZ will be wary of the risk of CPI inflation being stuck above three percent and will maintain restrictive official cash rate (OCR) settings for as long as it takes to push inflation below the target on a sustained basis.

"It would take a large deflationary shock for the OCR to move lower before the first half of 2024 and we expect a sequence of gradual OCR cuts to begin from the second half of this year (likely August)," Smith said.

"If, however, progress in lowering inflation stalls, OCR cuts could be delayed until 2025."