Inflation hits 12-month high of 2.7%

• Consumer prices rise 0.5 pct in June quarter
• Annual inflation rate 2.7 pct from 2.5 pct
• Higher food, electricity, housing, rents, drive increase
• Petrol, early childhood education, telco equipment fall
• Bump in prices unlikely to prevent further RBNZ rate cuts

Inflation has edged to a 12-month high on the back of more expensive rents, rates, electricity and food, but remains in the Reserve Bank's target band and is unlikely to prevent further rate cuts.

Stats NZ said the consumer price index rose 0.5 percent in the three months ended June, pushing the annual rise to 2.7 percent from 2.5 percent, the highest since June last year.

"Although the annual inflation rate has increased from the March 2025 quarter, it remains within the Reserve Bank's... Target band of 1 to 3 percent - the fourth consecutive quarter it has done so," senior manager of prices Nicola Growden said.

Rates, rents, power

Domestic prices - non-tradables - remained the backbone of inflation, rising 0.7 percent for the quarter and by 3.7 percent for the year, the slowest increase in four years.

Rates remained the single biggest driver, up 12.2 percent, still reflecting last year's increases.

Rents rose 3.2 percent over the past year, but were increasing at the slowest rate in four years, while electricity prices were up 8.4 percent reflecting recent increases in lines charges.

The costs of purchasing a new house fell for the first time 14 years in the June quarter, because of competitive pricing and cheaper fit out costs, although were 0.8 percent higher for the year.

By comparison, the price of imported goods and services - tradables - rose 0.3 percent for the quarter and by 1.2 percent for the year, reflecting the high prices being gained for export food such as dairy, as well as more expensive overseas accommodation.

A notable feature of the quarter was a surge in the cost of streaming services.

The main offsets were cheaper petrol and telecommunications equipment.

The inflation numbers were a shade below economists' expectations, although they have continued to forecast the annual rate going above the Reserve Bank's (RBNZ) 1-3 percent target band.

Expectations are for the RBNZ to deliver a further cut to the official cash rate next month to 3-percent, with further cuts dependent on the state of the local economy and the broader global trade and growth outlook.

New Zealand's inflation rate was higher than Australia and the European Union, matched that in the US, but was below the UK And the OECD's average of 4 percent.

Finance Minister Nicola Willis said the data showed inflation remained under control and it was the fourth consecutive quarter inflation had remained within the Reserve Bank's target range.

"New Zealanders can be assured it now has a government that is paying attention to forces that affect their cost of living," she said.

"It's pleasing to see non-tradeables inflation - which paints a picture of domestic demand and supply conditions - continues to fall."

The effect council rates had on inflation was a concern, Willis said.

"That's why this government has also been clear in its call to councils to focus on the basics and keep rates under control. We look forward to councils taking heed of this and playing their role as stewards of ratepayers' money better in the future," she said.

"External pressures on inflation remain, and we must remain cautious - it's a reminder that the economic recovery is not to be taken for granted."

Willis said rates capping "could make sense but how we do that is important because we do want to see councils continue to invest in new housing developments and restoring their water pipes, and we need to make sure that they don't take a rates cap as an excuse to do more rainbow toilets and less fixing of the pipes".

She criticised the opposition parties for not supporting such a policy.

"The opposition, while claiming they're on the side of Kiwis worried about the cost of living, have ostensibly opposed any efforts to cap rates. Well, I say it's one thing to cry their crocodile tears about the cost of living, it's another to be prepared to take the tough actions necessary to control it."

Local Government Minister Simon Watts is expected to bring a paper on possible rates capping to Cabinet in December.

Coalition party leaders David Seymour and Winston Peters have both expressed reservations about the idea.

Willis said there were also external pressures on inflation and the government and the Reserve Bank needed to stay vigilant about that. She pushed back on the suggestion the cost of living had worsened under the government's watch.

"On the objective facts prices are not rising as fast under our government as they were under the last, however that's not enough for us - we want to do better for Kiwis ... we're taking the actions we can to keep price increases under control.

"On the other hand, we need to strengthen this economy so we can see rising incomes because that's what makes it easier for people to cope with the cost of living and that's what our going for growth agenda's all about."

Inflation reached a 32-year high of 7.3 percent under the then Labour-led government in 2022.

But Labour finance spokesperson Barbara Edmonds said the latest figures show the cost of living crisis is getting worse under National and people are sick of it.

"Christopher Luxon promised to make the cost of living better, instead, he's making it worse." she said.

"Food prices are surging with butter up nearly 50 percent. Rates are up over 12 percent, electricity is up over 8 percent, and everyday costs continue to rise, yet this government keeps siding with property speculators and fossil fuel companies while families are left behind."

Edmonds said the prime minister was completely out of touch with the needs of middle New Zealand and it was no wonder 47,000 people chose to leave for Australia last year.

She said the government's inaction had slowed the economy down.

"For example, cancelling infrastructure builds, waiting 18 months and then finally reannouncing builds that were actually going to happen previously - that slows the economy down. It means there is less money in the economy for people to spend at retail shops, in restaurants. It also means that we have a whole bunch of people out of work."

Proposals for rates capping also came after what Edmonds said was 18 months of inaction on rates. The government was using councils as a scapegoat and local and central government needed to work together on solving the problem, she said, which was a result of the government cancelling Labour's water reforms.

Edmonds was unable, however, to identify any specific Labour policy for tackling the cost of living. She also refused to take a position on rates capping, saying Labour's caucus was yet to consider that.

"We'll come out with our policies when we come out with them and in due course. However, what we wouldn't have done is a lot of what this government has done, which is put a handbrake and a pause on a lot of key infrastructure projects."

Green Party co-leader Chlöe Swarbrick said the inflation numbers show the government is failing by its own standards while vulnerable people pay the price.

"While Christopher Luxon talks about growth at all costs, New Zealanders across the country are being forced to choose between heating their home or feeding their families," Swarbrick said.

"Luxon's Government is cutting investment and creating the conditions for severe unemployment, shredding the social safety net, pushing thousands into poverty, and then punishing them for it."

Swarbrick said a report published by the Child Poverty Action Group showed that rent, food and utilities were taking up between 62 and 98 percent of disposable income for beneficiary families, and over 60 percent for full-time minimum-wage workers.

"Christopher Luxon shows people who he works for in his actions every day. While telling regular people there's 'no magic money tree,' he's found billions for military spending, fossil fuel, tobacco, and landlord tax cuts," she said.

Reserve Bank to 'look through' inflation rise

ASB senior economist Mark Smith said the latest figures did not change ASB's view that the increase in annual inflation had further to run.

"We still expect annual CPI inflation to move above 3 percent in the September 2025 year," he said.

"It's always tricky in advance to know how long higher rates of inflation will persist for," Smith said. "Lower readings for core inflation, and abundant spare capacity suggest that the period of 3 percent inflation will prove to be short-lived."

Smith said the RBNZ would likely "accommodate" the increase in inflation as the weaker global outlook and "the large margin of spare capacity implies 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. "We expect the OCR to be cut by 25bps in August to 3 percent."

Westpac senior economist Satish Ranchhod echoed that sentiment.

"Today's result won't have done much to change the RBNZ's mind relative to the cautious easing bias it signalled at its recent policy review," he said.

"While today's result was in line with the RBNZ's last published forecast from May, their July policy statement indicated that they were braced for a stronger result."

Ranchhod said the latest figures probably came in "a little on the low side of what the RBNZ had anticipated".

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