New Zealand Inflation Rises to 2.7% in Q2, Rate Cut Still in Play

New Zealand’s annual consumer inflation rose to 2.7% in the second quarter of 2025, up from 2.5% in Q1, but slightly below economists’ forecast of 2.8%, according to Statistics New Zealand. The increase was driven by higher local government taxes and rising housing rental prices.

On a quarterly basis, the consumer price index (CPI) climbed 0.5%, easing from a 0.9% gain in the previous quarter and missing the 0.6% increase expected by analysts polled by Reuters. Despite the uptick, inflation remains within the Reserve Bank of New Zealand’s (RBNZ) target band of 1% to 3% for the fourth straight quarter.

The RBNZ, which held interest rates steady earlier this month, had projected annual inflation at 2.6% for Q2. Since August 2024, the central bank has reduced interest rates by a total of 225 basis points to 3.25%. While this marks the first pause in its rate-cutting cycle, market expectations for another cut in August remain high.

Ongoing global uncertainties, particularly surrounding U.S. President Donald Trump’s trade policies, continue to weigh on central bank decisions. Although inflation is edging closer to the RBNZ’s upper target limit, economists point to subdued medium-term inflation and spare economic capacity as justification for potential easing.

Non-tradeable inflation, which reflects domestic price pressures, rose 3.7% year-over-year—its slowest pace since Q2 2021.

According to Nicola Growden of Statistics New Zealand, “Although the annual inflation rate increased from the March quarter, it remains within the RBNZ’s target band.” With inflation pressures still moderate and the broader economy showing signs of weakness, markets are increasingly pricing in a rate cut at the RBNZ’s next meeting.