Many bank economists are projecting inflation, as measured by the Consumers Price Index (CPI), will be a smidge below the Reserve Bank\u2019s June quarter projection of 4.2%.<\/p>\n
On Tuesday, Statistics NZ’s latest Selected Price Indexes (SPI) figures<\/a> showed petrol and diesel prices dropped slightly in May, following two months of rises. Alongside this, monthly food prices were up 1.0%.<\/p>\n Following the SPI release, ANZ, Westpac and ASB downgraded their inflation projection for the June quarter – all settling on 4.1%. ANZ and Westpac had previously projected 4.4% while ASB had picked 4.3%.\u00a0<\/p>\n BNZ revised its projection up slightly, going from 4.0% to forecasting 4.1% for the June quarter. BNZ senior economist Doug Steel did caveat this revision, saying the June quarter figure was still dependent on the June monthly results and the rest of the CPI that is not covered by the monthly indicators.<\/p>\n The SPI is a monthly series that features about 47% of the contributors to the CPI. The Reserve Bank (RBNZ) is tasked with keeping inflation between 1% and 3%.<\/p>\n Volatility assured<\/p>\n Steel said volatility seems assured in the monthly SPI.<\/p>\n \u201cThere was a bit more of it in today\u2019s figures for May. After being surprised on the downside last month<\/a>, the balance of May price movements was a touch stronger than we had pencilled in.\u201d<\/p>\n Steel said most of the surprise came from food prices. \u201cThere were solid monthly gains in vegetables, groceries, and restaurant meals and ready-to-eat food.\u201d<\/p>\n ANZ senior economist Miles Workman said looking forward, the shock to global fertiliser supply due to the Middle East conflict along with higher freight costs will likely add to global food price inflation.<\/p>\n ASB senior economist Mark Smith said consumer caution and the subdued backdrop was still having a moderating impact on inflation.\u00a0<\/p>\n \u201cDownward surprises were evident for a number of spending categories including accommodation and airfares. Rents dipped in May and annual dwelling rental inflation looks to have hit a record low.\u201d<\/p>\n US-Iran deal<\/p>\n Steel said fuel prices fell as anticipated and the drop took the \u201cedge off very high annual inflation in these components after strong gains in previous months\u201d.\u00a0<\/p>\n \u201cOur forecasts include further material fuel price declines. The latest deal between the US and Iran<\/a> to stop hostilities and reopen the Strait of Hormuz supports the case for further declines in fuel prices at the pump,” Steel said.<\/p>\n \u201cBut we, along with everyone else, will continue to monitor developments and alter our projections if needs be.\u201d<\/p>\n Westpac senior economist Satish Ranchhod said: \u201cRecent weeks have also seen fuel prices starting to drop back with petrol prices down 4% and diesel prices down 11% in May.\u201d<\/p>\n \u201cImportantly, with an easing in tensions in the Middle East we expect to see a further fall in pump prices over the coming weeks.\u201d<\/p>\n ANZ\u2019s Workman said: \u201cWhile a lower-than-otherwise near-term surge in inflation, alongside recent headlines that the US and Iran have agreed to a Memorandum of Understanding is certainly welcome, this doesn\u2019t fully unwind the global supply shock, and it is still early days as far as the medium-term inflation outlook is concerned.\u201d<\/p>\n ASB\u2019s Smith said if the deal holds, the softer outlook for oil prices is likely to significantly lower the profile for inflation over 2026.\u00a0<\/p>\n \u201cOur central forecasts now have annual CPI inflation hitting 4.1% in the June 2026 year and ending 2026 at around 3.6%. This is below the May MPS (Monetary Policy Statement) forecasts.<\/p>\n \u201cThe inflation outlook for 2027 is highly uncertain, with a tug-o-war currently at play between cost and demand driven influences.\u201d<\/p>\n