Consumers price index

Finally some let up in price rises but inflation still at 6.7%pa

20 Apr 2023
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Brad Olsen

Our take on the latest Consumers price index (Thu 20 Apr 2023)

Annual inflation decelerated to 6.7%pa in March
Residential building cost increases slowed to 1.1%
63% of all items rose in price

The key numbers...

  • The Consumers Price Index (CPI) rose 1.2% in March 2023, seeing the annual inflation rate decelerate to 6.7%pa – the slowest annual rate in over a year.
  • The result was markedly weaker than the market expectation of 7.1%pa and the Infometrics pick of 7.2%pa.
  • Non-tradables (domestically-based) inflation remained high, at 1.7% in the March quarter, taking the annual non-tradables inflation rate to 6.8%pa – the highest on record. Tradables (overseas-based) inflation moderated to just a 0.7% quarterly increase, the slowest since the start of 2021.
  • Fuel prices drove the slowdown in the tradables result, with petrol prices falling 2.6% in March from December, taking petrol prices down 8.3% from a year ago.
  • Other prices rose further still, with food prices up 11.3%pa and rents rising 4.3%pa. Residential building costs rose 1.1%, the slowest rise since the September 2020 quarter. Excluding quality adjustments, the building cost increase would have been 1.4%.

Still-strong domestic inflation

Annual % changes, by component of inflation
4556

...and our reaction

  • The slowdown in annual inflation to 6.7% is undeniably good news and shows that, despite the effects of Cyclone Gabrielle on some areas, there is some dampening occurring in inflationary pressures.
  • Part of the moderation in inflation was the fall in fuel prices, and there’s always the risk that these prices bounce back due to international events (like the recent decision by OPEC+ to cut production and increase crude oil prices).
  • However, stripping out some of the more volatile items does show an underlying moderation in what had been intense pricing pressures. The “All groups less food group, household energy subgroup, and vehicle fuels” measure rose just 0.9% in the March quarter, the slowest since the March 2021 quarter.
  • The number of items rising in price pulled back from 72% last quarter (the second highest on record) to just under 63%, and the number of items falling in price rose to just over 23% of assessed items, the highest in over a year. There also appears to be more discounting occurring, including across some larger items such as household furnishings.
  • To be clear, 6.7% annual inflation is still far too high, but the deceleration is good news in New Zealand’s battle against inflationary pressures. The result should bolster the Reserve Bank’s view that it is near the end of the raising cycle, but a question remains over if the Bank has done enough to slay the inflation dragon. With the level of non-tradables inflation still high, that battle isn’t over yet. 

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