Inflation was slightly softer than expected in the June quarter. Prices rose by 0.5% over the past three months. Annual inflation rose to 2.7%, up from 2.5% previously.
Consumers Price Index, June quarter 2025 – key stats
Headline inflation
- Quarterly change: +0.5% (prev: +0.9%)
- Westpac forecast: +0.6%, RBNZ (May MPS): +0.5%
- Market median: +0.6%, range +0.5% to +0.8%
Annual change: +2.7% (prev: +2.5%)
- Westpac forecast: +2.8%, RBNZ (May MPS): +2.6%, Market: +2.8%
Non-tradables
- Quarterly change: +0.7% (prev: +1.1%)
- Westpac forecast: +0.7%, RBNZ (May MPS): +0.7%
- Annual change: +3.7% (prev: +4.0%)
Tradables
- Quarterly change: +0.3% (prev: +0.8%)
- Westpac forecast: +0.4%, RBNZ (May MPS): +0.1%
- Annual change: +1.2% (prev: +0.3%)
Consumer prices rose 0.5% in the June quarter. That saw the annual inflation rate rising slightly to 2.7%, up from 2.5% in the year to March.
The June quarter inflation result was a little below the 0.6% rise we expected.
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. We suspect today’s result was actually a little on the low side of what the RBNZ had anticipated.
Looking through the normal quarter-to-quarter volatility in prices, core inflation remains contained in the RBNZ’s target band. However, it isn’t dropping like it did last year and remains a little above 2%.
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. We continue to expect another 25bp cut in August. Going forward, we’ll be watching core inflation measures closely to see how strong the underling trend in prices is.
What contributed to inflation in the June quarter?
Underpinning June’s rise in consumer prices were large increases in two specific areas:
- Food prices (19% of the CPI) were the largest upside contributors to quarterly inflation, with prices up 1.6% over the quarter. That was mainly due to a large seasonal increase in vegetable prices. There have also been large increases in the prices of dairy products and other grocery items.
- There has also been a large increase in household energy prices (3% of the CPI), with electricity prices up 4.7% over the quarter. That’s in part due to increases in lines and transmission charges.
On the downside, petrol prices (4% of the CPI) fell around 5% over the past few months.
There were a couple of other notable price movements:
We’re continuing to see softness in housing rents, which are the largest component of the CPI. The past three months saw rents rising by just 0.8%. In annual terms, rental inflation has slowed to 3.2%, the lowest it’s been since 2021. There’s been particular softness in Auckland and Wellington. Auckland’s rental market in particular is feeling the impacts of the downturn in net migration and the increases in the housing stock in recent years.
The cost of purchasing a newly built home was down -0.1% in June quarter, and is up just 0.8% over the past year. That’s the smallest annual increase since 2009 and reflects the protracted downturn in building activity over the past year and related competitive pressures in the construction sector.
There were also large movements in specific areas – audiovisual and computer prices fell 13%, while charges for streaming services were up nearly 10%. There was also a fall in the cost of pharmaceutical products reflecting the impact of subsidies.
Annual inflation has risen to 2.7%
Annual inflation rose to 2.7% in the June quarter, up from 2.5% in the year to March. Looking under the surface, we’re seeing some notable changes in some key areas.
Looking first at tradables (which relates mainly to the prices of imported goods), prices were up 0.3% in the March quarter, leaving them up 1.2% over the past year. That was a slightly smaller rise than we or the RBNZ expected.
While we have seen large increases for prices of some items like food tradables prices more generally have remained subdued. That’s consistent with sluggish household spending that has been weighing on the prices for items like furnishings and apparel.
Balanced against that pickup in imported costs, domestic prices (aka non-tradables) rose 0.7% in the June quarter (as expected). That saw annual non-tradables inflation slowing to 3.7%, down from 4.0% in the year to March and the lowest it’s been since 2021.
Underlying that easing in domestic inflation has been the softness in domestic activity which has seen muted growth in wages and service sector prices. We’ve also seen an easing in rents and subdued increases in the cost of new housing.
But even with that softness in domestic activity, overall non-tradables inflation has been easing only gradually over the past year due to continued increases in administered costs, like household energy.
Core inflation contained, but not dropping
While increases in the prices of volatile items like food have pushed inflation higher in recent months, the longer-term trend in inflation looks better contained. Most measures of core inflation (which smooth through volatile quarter-to-quarter movements in prices and instead track the underlying trend in inflation) remained well-contained within the RBNZ target band.
Notably, however, the decline in core inflation that we saw over the past year has come to a halt this quarter, with some measures actually nudging higher this quarter. And with most measures remaining a little above 2%, that will be worth watching over the coming months.
In terms of specifics:
- Trimmed mean inflation remained at 2.5%.
- Weighted median inflation fell to remained 2.2%.
- Inflation excluding food, fuel and energy costs nudged higher to 2.7% from 2.6% previously.
