Inflation Predicted to Hit 12-Month High for June Quarter

Keywords: inflation, economy, Reserve Bank, consumer prices, food prices, power costs, monetary policy, interest rates
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Monday, 21 July 2025

Inflation Predicted to Hit 12-Month High for June Quarter


Inflation is expected to reach its highest level in 12 months during the June quarter, driven largely by rising food prices and surging power costs. This surge has placed additional pressure on household budgets, as consumers face higher expenses for essential goods and services.


According to recent economic forecasts, consumer prices for the three months ended June are expected to rise by 0.6%, pushing the annual inflation rate to 2.8%—up from 2.5% in March. This increase is attributed to key domestic factors, including rising electricity costs and food prices, while rental growth and construction costs have slowed.


ANZ senior economist Miles Workman noted that the main drivers of the quarterly inflation spike are the food and housing-related sectors. He explained that while high export prices for meat and dairy products have contributed to inflation, they have also supported the economy by generating strong export returns.


ASB senior economist Mark Smith predicted that the inflation rate could temporarily rise above 3% in the September quarter, but emphasized that this increase is likely to be short-lived. He highlighted the importance of upcoming inflation expectations surveys in determining whether the current inflationary pressures are transitory or persistent.


Smith also pointed to the deteriorating global economic outlook and the significant amount of spare capacity in the economy as factors that could dampen long-term inflationary trends. He stressed that these conditions are expected to moderate the medium-term inflation outlook.


The Reserve Bank of New Zealand (RBNZ) is likely to face a challenging balancing act as it weighs the need to control inflation against the need to support economic recovery. Workman noted that the bank will have to consider both the current inflation data and the signals from high-frequency data, which suggest a stalling economic recovery and potential downside risks to inflation.


In its most recent monetary review, the RBNZ acknowledged the recent acceleration in inflation but also hinted at the possibility of further rate cuts later in the year. The bank stated that if medium-term inflation pressures continue to ease as expected, it would consider lowering the official cash rate further.


Kiwibank economists echoed this sentiment, noting that core inflation has been on a declining trend since peaking at 6.7% in late 2022. They expect the official cash rate to be cut further, with another 25 basis-point reduction anticipated in August. Workman predicted that cuts in August, November, and early next year would bring the cash rate down to 2.5%.


Consumer prices for the three months ended June are expected to have risen 0.6 per cent, pushing the annual rate to 2.8 per cent from 2.5 per cent in March.

As the economic landscape continues to evolve, the interplay between inflation and monetary policy will remain a focal point for policymakers and economists alike. The coming months will be critical in determining the trajectory of inflation and the direction of interest rates.

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