By David Winning
SYDNEY--New Zealand's consumer prices rose by less than expected in the first three months of this year, giving the country's central bank more latitude to join global counterparts which have either cut interest rates or are considering doing so.
Consumer prices rose by 0.6% in the first quarter of this year, and by 4.0% from the same period a year earlier, Stats NZ said Wednesday. Both measures were weaker than economists had forecast.
The 4.0% increase follows an annual rise of 4.7% in the fourth quarter and was the smallest annual increase in the CPI since June 2021. While that trend is likely to comfort the Reserve Bank of New Zealand, inflation remains above the central bank's target band of 1-3%.
New Zealand, and other regional central banks including South Korea and Thailand, held rates steady at meetings last week, in line with most of their peers. Some economists have penciled in the start of easing for the second half of the year, if at all.
Central bank officials in New Zealand continue to caution that maintaining the official cash rate at a restrictive level for a sustained period is needed to bring inflation back to target. They have yet to signal when the bank could pivot to cutting rates from the current 5.5%.
On Wednesday, Stats NZ said housing and household utilities were the main drivers of the annual inflation rate, partly reflecting higher rents and construction of new homes.
"Rent prices are increasing at the highest rate since the series was introduced in September 1999," said Nicola Growden, consumers prices senior manager at Stats NZ.
Satish Ranchhod, senior economist at Westpac NZ, said domestic drivers of inflation are too hot for the RBNZ to contemplate lowering interest rates in the near term. Non-tradables inflation is lingering at high levels long after the start of the central bank's tightening cycle, he said.
"The divergence between the domestic and imported components of inflation illustrate the big concerns that the RBNZ is trying to balance," said Ranchhod.
Kim Mundy, senior economist at ASB, said the CPI data are unlikely to redraw the outlook substantially changed for the RBNZ. While core inflation continues to cool, it is happening very slowly.
"Patience in the pursuit of sustained low inflation is, in our view, likely to guide the RBNZ's actions and narrative throughout much of 2024," said Mundy, who expects the central bank to begin easing policy in February next year.
Write to David Winning at david.winning@wsj.com
(END) Dow Jones Newswires
04-16-24 1942ET
