New Zealand’s domestic inflation has eased, raising expectations for mortgage rate reductions and economic relief for households, according to Finance Minister Nicola Willis.

Stats NZ reported today that the consumer price index (CPI) rose 2.2% in the year to December 2024, marking the second consecutive quarter within the Reserve Bank’s target range of 1-3%.

The domestic inflation component—non-tradables—dropped from 4.9% in September to 4.5% in December, a positive sign for borrowers and businesses.

Willis welcomed the trend, stating, “Decisions about the Official Cash Rate are a matter for the Reserve Bank, but the decline in domestic inflation is good news for people with mortgages. Together with other recent economic data showing spare capacity in the economy, it suggests there is scope for further rate reductions in the coming months.”

The easing inflation follows a Reserve Bank report showing that the average residential mortgage interest rate fell in November for the first time since September 2021.

Willis credited government measures to control public spending for helping ease inflationary pressures.

“Lower inflation and interest rates set the foundations for economic growth, investment, jobs, and higher incomes. The benefits of restoring discipline to public spending are starting to flow through to people’s bank accounts,” she said.

Key Factors Influencing Inflation

Stats NZ data shows that while inflation remains a concern, price growth has slowed significantly from its June 2022 peak of 7.3%.

Rent prices remain the biggest contributor to annual inflation, increasing 4.2%, with local authority rates and payments also climbing 12.2%.

Tobacco and cigarettes rose 7.6% due to the annual excise tax increase on 1 January 2024, while international airfares jumped 6.6% in the December quarter, significantly impacting the 0.5% quarterly CPI rise.

However, some falling prices helped offset these increases.

Petrol prices dropped 9.2% over the year, aided by the removal of Auckland’s regional fuel tax in June 2024.

Vegetable prices also declined 14.6%, with kūmara, potatoes, and onions seeing the largest reductions.

“If petrol was excluded, the CPI would have increased 2.7% in the 12 months to December 2024,” said Stats NZ prices and deflators spokesperson Nicola Growden.

Impact on Coasties

For Hibiscus Coast residents, lower inflation may ease financial strain, particularly for mortgage holders.

Falling interest rates could reduce cost-of-living pressures and provide more financial stability for households.

Council rates and rental costs remain significant factors in household budgets, and while inflation is easing, many residents may still feel financial pressure from persistent housing and utility costs.

What’s Next?

With inflation staying within the Reserve Bank’s target for a second straight quarter, attention now shifts to potential interest rate cuts.

While the Reserve Bank remains cautious, the slowing of domestic inflation suggests monetary policy easing could be on the horizon.

For now, we will be watching closely to see if lower inflation translates into meaningful reductions in everyday costs.

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