Consumers price index

Inflation decelerates to 6.0%pa, but household cost pressures remain extreme

19 Jul 2023

Sabrina Swerdloff

Our take on the latest Consumers price index (Wed 19 Jul 2023)

Annual inflation decelerated to 6.0%pa in June

Non-tradeable inflation little changed at 6.6%pa

Residential building cost inflation down 10 percentage points from peak

The key numbers...

The Consumers Price Index (CPI) rose 1.1% in the June 2023 quarter, marking the third consecutive quarter of decelerating inflation. This result brought annual inflation down to 6.0%pa, its slowest rate since late 2021.
The CPI result was close to market expectations, coming in just below the Reserve Bank’s forecast of 6.1%pa, and just ahead of the Infometrics pick of 5.9%pa.
Non-tradable (domestically based) prices recorded their smallest quarterly increase in two years, rising 1.3%. Tradable (overseas-based) prices rose 0.8%, a slightly higher result than in March, but considerably below the average quarterly increase over the last two years (1.7%).
Fuel prices fell 15%pa over the year to June, the largest annual decline since 2009. International air fares fell 12% on a quarterly basis, but remain elevated compared to pre-pandemic levels.
Residential building costs increased 1.1% in the June quarter, bringing annual building cost inflation down from 11%pa in March to 7.8%pa. Building cost inflation is now around 10 percentage points below its early-2018 peak of 18%pa.
Essential costs to households, including energy and food, are continuing to accelerate. Household energy costs rose a further 2.7% in June, lifting the annual inflation rate to 4.8%pa. Annual food price inflation hit 12%pa, the largest annual increase since 1987, when GST was introduced.

Non-tradeable inflation still quite high

CPI components, annual % changes

...and our reaction

The June quarter result affirmed that the Reserve Bank’s previous programme of interest rate increases is having its desired effect of slowing inflation. However, non-tradable inflation remains concerningly high on an annual basis at 6.6%pa, indicating that some domestic components of inflation are fairly sticky.
The proportion of CPI items rising in price lifted by five percentage points from the March quarter, which again underscores the broad base of inflation pressures.
Services-based inflation held at 6.1%pa in June, reflecting that wage pressures and the tight labour market are continuing to push up prices. However, goods-based inflation eased from 7.0%pa in the March quarter, to 6.0%pa.
Overall, inflation is decelerating across a number of important areas, including building costs and transport. However, there are also several pockets where prices are continuing to rise intensely, particularly for essential household goods.
A relatively strong inflation result is likely in the September quarter, with the return of higher fuel excise duty and public transport fares set to add about 0.5 percentage points to inflation in the quarter. However, at this stage the annual inflation rate is still expected to ease slightly to be low 6%pa.
The Reserve Bank is likely to keep the official cash rate at 5.5% until more evidence is available that inflation is definitely under control. We expect the Bank to closely monitor non-tradable inflation. Any signs of an easing in the labour market in data to be released in two weeks’ time would be welcome news given the role that wage pressures are still playing in non-tradable inflation.

Latest updates

Premium

Consumers price index

Inflation decelerates to 6.0%pa, but household cost pressures remain extreme

The key numbers...

Non-tradeable inflation still quite high

...and our reaction

Latest updates

Fuel price spike sends annual inflation to 4.1%pa

Inflation still high going into fuel price shock

Inflation breaches the RBNZ upper band

Inflation rises to 3.0%pa, hits top of the Reserve Bank's band