Inflation fell by more than the Reserve Bank (RNBZ) had been expecting in the June quarter - prompting one bank to say that official cash rate (OCR) cuts could potentially start as early as next month.
In the 12 months to June 2024 the annual rate of inflation was 3.3 percent, just above the Reserve Bank's target of 1 percent to 3 percent. The RNBZ said in May it was expecting a rate of 3.6 percent.
Tradable inflation - which is affected by international prices - was only 0.3 percent in the year to June, while non-tradeable, domestic inflation was 5.4 percent, slightly higher than the RNBZ had been expecting.
ASB said the data tilted the risk towards larger and earlier official cash rate cuts, and it was likely that a 25 basis point (bps) cut in November would be the "bare minimum" of what the Reserve Bank would need to deliver over 2024.
"All of the remaining OCR decisions over 2024 are effectively 'live' and cuts could start as soon as next month," the banks' economists said in an update.
"Risks are strongly skewed towards at least 50bps of OCR cuts being delivered over 2024."
Kiwibank economists said rental inflation was at its fastest rate since the late 1990s, but it was likely to be nearing a turning point, as the economic backdrop deteriorated.
They expected inflation to fall below 3 percent in the September data and the Reserve Bank to be able to deliver a rate cut by Christmas - or earlier if the data continued to show cooling.
"Today's progress on core inflation has us growing in confidence that the RBNZ's 2 percent target will be achieved in 2025. Rate relief is on its way."
ANZ said the data had prompted it to pull forward its expectation for an OCR cut to November, not February as it previously forecast.
Westpac has also brought forward its forecast, to a November cut.
But there are concerns some of the remaining problem areas could be harder for the central bank to influence. Housing and household utilities were the largest factors pushing up inflation - rents up 4.8 percent over the year, rates 9.6 percent and the construction of new houses 3 percent.
Prices for insurance were up 14 percent over the year. Stats NZ consumer prices senior manager Nicola Growden said the insurance price increase was nearly double what it was in June 2009, the previous highest peak.
"Increases in dwelling and vehicle insurance premiums largely drove the higher insurance prices."
ASB said inflation, excluding insurance, council rates and tobacco and alcohol - which are affected by excise increases - was down to 2.4 percent.
"We do not envisage that higher costs from these pockets will feed through into generalised increases in inflation in the current environment. In fact, they seem to be a significant added cost to household budgets and could have a disinflationary impact on inflation."
Gareth Kiernan, chief forecaster at Infometrics, said the RBNZ should "look through" things like rates and insurance "and look at some of the other stuff more closely that they can influence".
He said it was a "fly in the ointment" that it was helping keep non-tradable inflation higher than expected, but it was difficult to know how the bank would react.
"Who knows if they will wake up in May and complain about those things, or like they did in July and say 'she'll be right'."
Kiernan still expected a February cut, but that was largely because the RBNZ had indicated in May that cuts were still a long time away. For it to bring that forward to November now, it would require the bank to have significantly changed its thinking with relatively little data to do so.
At ANZ, Sharon Zollner said she expected that if things like rates and insurance became "stranded" as outliers, while the rest of the inflation numbers fell, the RBNZ would be more confident looking through them and focusing on core inflation rather than overall non-tradable inflation.
"This was the fifth consecutive upward surprise on non-tradable, we were hoping it would mark the end of that but there are plenty of details that indicate cost pressures are falling, it's harder to push cost increases through - overall it's a pretty reassuring read relative to the fears the Reserve Bank expressed in May."
She said there was now an "enormously wide" gulf between the RBNZ's May forecast of no cuts until August, and economist forecasts and market pricing.
"But the Reserve Bank is not afraid to change its mind when the facts change."
Kelly Eckhold, Westpac chief economist, said the RBNZ would probably find the update comforting on a headline basis.
He said the drop in tradable inflation was maybe what should be expected given the supply chain disruptions had filtered through, the exchange rate was relatively stable and the retail sector was under a lot of pressure and not in a position to protect its margins.
