New Zealand Inflation Hits Top of RBNZ’s Target Band, Underlying Pressures Recede.

New Zealand's inflation rate has risen to 3% in the third quarter, matching the Reserve Bank's 1%-3% target band. Despite the uptick, underlying price pressures are contained, and the central bank is expected to ease policy further. The RBNZ has already cut the Official Cash Rate to 2.5% and is likely to reduce it by another 25 basis points in November.

New Zealand's inflation rate has climbed to 3% in the third quarter of 2025, the highest since the second quarter of 2024, according to data released by the Reserve Bank of New Zealand (RBNZ). This increase, from 2.7% in the previous period, is in line with forecasts and brings the annual inflation rate to the top of the RBNZ's 1% to 3% target band, according to a TradingView report.

The primary contributors to the inflation rise are within the housing and household utilities group. Electricity prices surged by 11.3%, the highest since the March 1989 quarter, while rent increased by 2.6% and local authority rates and payments rose by 8.8%, the report noted. Vegetables also played a significant role, with prices up by 12.2%, largely due to seasonal increases in tomatoes, cabbage, capsicums, lettuce, and broccoli.

The quarterly Consumer Price Index (CPI) increase of 1% is the most substantial in two years, following a 0.5% rise in the previous period. Local authority rates and payments were the largest upward contributor to this quarterly rise, up by 8.8%.

In response to the inflation data, the RBNZ has signaled openness to further rate cuts. The current Official Cash Rate (OCR) of 2.5% is at the lower end of the neutral range, and the Monetary Policy Committee (MPC) remains open to additional cuts if necessary, according to a TradingView analysis. The RBNZ has already reduced the OCR by 50 basis points last week, bringing the total reduction to 300 basis points since August 2024.

The RBNZ's Chief Economist Paul Conway noted that the decision to cut by 50 basis points was "very finely balanced," given that inflation remains near the top of the target band. He emphasized that spare capacity in the economy gives policymakers confidence that inflation will gradually return to the 2% midpoint over time. Conway also pointed to a recent survey by the NZIER, which showed business sentiment worsened in Q3, reinforcing the RBNZ's view on the need for supportive monetary policy.

While the RBNZ is open to further interest rate cuts, Conway emphasized that policymakers will wait to assess incoming economic data before making additional decisions. This cautious approach reflects the RBNZ's commitment to managing inflation while maintaining economic stability.