WELLINGTON: New Zealand home-grown price pressures persisted in the first quarter even as headline inflation slowed to its weakest in almost three years.

Annual inflation eased to 4% from 4.7% in the fourth quarter, Statistics New Zealand said yesterday. That’s the lowest reading since the second quarter of 2021 and matched economists’ expectations.

However, non-tradable inflation, a closely watched indicator of domestic price pressures, barely slowed to 5.8%.

The New Zealand central bank’s tight monetary policy tipped the economy into a double-dip recession last year, but policymakers are reluctant to entertain cutting the official cash rate (OCR) until they’re sure inflation will return to their 1% to 3% target band.

The Reserve Bank of New Zealand (RBNZ) expected inflation to slow by 3.8% and that the non-tradable measure would gain 5.3%.

“There was a degree of strength in the details, suggesting that domestic inflation pressures are proving stubborn to stamp out,” said Kim Mundy, an economist at ASB Bank in Auckland.

“The RBNZ will be very wary of the risk of inflation being stuck above 3%. We now expect the RBNZ to wait until February 2025 to cut the OCR.”

The local currency dropped as much as 0.3% after the annual inflation reading was initially incorrectly reported as coming in below estimates.

It then rebounded, extending an earlier rise, to buy 58.95 US cents in Wellington. The yield on policy-sensitive two-year government bonds rose eight basis points to 4.99%.

Last week, the RBNZ kept its cash rate at 5.5% after signalling in February that it didn’t expect to ease policy until 2025.

Before the inflation report, most economists expected a rate cut in the second half of this year, but ASB now joins ANZ Bank and Westpac in predicting the RBNZ will delay pivoting until next year.

While the RBNZ has projected inflation will fall below 3% in the third quarter of this year, policymakers have also said they are concerned that core inflation is “sticky”.

And they are mindful that inflation expectations could rise, driven by components they have little control over, such as local government land taxes, insurance costs and rents.

“There was nothing in the release today that supported bringing forward the easing cycle,” said Stuart Ritson, a fixed income strategist at the Bank of New Zealand in Wellington.

Non-tradable prices rose 1.6% in the quarter, accelerating from 1.1% in the final three months of 2023 and more than the 1.3% tipped by economists.

Tradable prices, which reflect movements in global commodities and imported items, fell 0.7% in the quarter and rose 1.6% from a year earlier, down from 3% in the fourth quarter.

New Zealand is not alone in finding inflation difficult to budge.

A key measure of US consumer prices rose more than forecast for a third straight month in March, increasing concerns that inflation is re-accelerating and prompting investors to reassess bets on when the Federal Reserve will start cutting rates.

Consumer prices advanced 0.6% from three months earlier, matching economists estimates, driven by rents, tobacco prices and home construction costs, the statistics agency said.

Nine of the 11 groups in the consumer price index basket showed increases. Measures of core inflation were mixed, the data showed.

Consumer prices excluding food, fuel and energy rose 4.1% from a year earlier, matching the pace in the fourth quarter, while the 30% trimmed mean measure rose 4.5% from a year earlier, slowing from 5%.

 - Bloomberg