New Zealand's annual consumer inflation accelerated in the second quarter but was below economists' forecasts, leading markets to narrow the odds on a rate cut next month given weakness in the broader economy.
Annual inflation came in at 2.7% in the second quarter, its highest level in a year, and speeding up from the 2.5% rate in the first quarter, Statistics New Zealand said in a statement on Monday. However, economists had forecast inflation at 2.8%.
The statistics agency attributed the uptick to an increase in local government taxes and housing rental prices.
On a quarter-on-quarter basis, the consumer price index rose 0.5%, compared with a 0.9% increase in the first quarter.
Economists in a Reuters poll had forecast a 0.6% rise for the quarter.
The New Zealand dollar dipped 0.3% to $0.5941 following the data release. Markets are now pricing in a 75% chance that the central bank will cut by 25 basis points in August, up from a 61% chance ahead of the data.
The Reserve Bank of New Zealand, which in May forecast annual inflation for the quarter at 2.6%, held interest rates steady at this month's policy meeting partly due to near-term price risks.
It was the first pause in the RBNZ's easing cycle that began in August 2024, a period in which it slashed rates by 225 basis points to 3.25%.
The uncertainty around U.S. President Donald Trump's tariff policies and the impact on global growth and prices have kept most policymakers, including the RBNZ, on edge.
New Zealand's annual inflation is nudging nearer to the upper end of the central bank's 1% to 3% target band. But economists say that with medium-term inflation expected to remain contained and considerable spare capacity in the economy, a rate cut in August remains likely.
ASB Bank senior economist Mark Smith said ASB's core judgment is that the RBNZ will accommodate or look through the tick up in near-term inflation as the weakening global outlook and the large margin of spare capacity imply a lower medium-term inflation outlook.
“After earlier tapping the monetary policy brakes, the RBNZ is expected to press the accelerator and actively provide policy support," Smith said in a note.
Annual non-tradeable inflation rose 3.7% in the second quarter, its lowest level since the second quarter of 2021, according to Statistics New Zealand.
