New Zealand inflation accelerates, but rate cut expectations remain

New Zealand’s inflation accelerated in the second quarter on higher fuel and housing costs, but did little to change market expectation that interest rates will be cut this year to bolster a slowing economy.

Statistics New Zealand said on Tuesday that consumer prices rose 0.6% in the June quarter and 1.7% from the same period a year earlier, in line with the Reserve Bank of New Zealand’s (RBNZ) forecasts and the consensus of economists polled by Reuters.

Inflation was 0.1% in the previous three-month period and 1.5% on year.

“Petrol prices rose slowly over the first part of the quarter, reaching a peak in late May and then falling,” Statistics NZ senior manager Paul Pascoe said in a statement.

Inflation remained within the RBNZ’s 1-3% target range, but below the midpoint of 2%.

The central bank kept the official cash rate (OCR) at a record low of 1.50% last month, but warned in a strikingly dovish statement that further cuts to borrowing costs may be needed given growing economic risks at home and abroad.

“Concerns about slowing domestic growth and the uncertain global environment meant that the RBNZ had already judged that a further OCR cut was “likely.” Today’s report will do nothing to change that stance,” Michael Gordon, senior economist at Westpac, said in a note.

Petrol prices were the largest contributor to inflation in the quarter, rising 5.8% after a 7.0% fall in the March 2019 quarter.

Rental prices also rose 1.0% in the June quarter, the largest rise since the March 2008 quarter.

The New Zealand dollar was unchanged after the inflation data.

RBNZ’s next monetary policy meeting is on August 7.