New Zealand’s annual inflation accelerated for the first time in almost three years, while still remaining within the Reserve Bank’s target band, suggesting policymakers can press ahead with further easing to support the economy.

The Consumers Price Index rose 2.5% in the first quarter from a year earlier, quickening from 2.2% three months prior, Statistics New Zealand data showed Thursday in Wellington. The RBNZ and economists’ expectation was for a 2.4% gain. Consumer prices advanced 0.9% from the fourth quarter, also exceeding estimates.

While inflation is edging away from the midpoint of the RBNZ’s 1-3% target, the central bank has scope to keep cutting interest rates as the economy struggles to recover from a deep recession. A volatile and rapidly evolving barrage of US tariffs is further clouding the global outlook, prompting several economists to predict the Official Cash Rate will drop below 3% this year from 3.5% at present.

New Zealand’s dollar was little changed immediately after the data, buying 59.40 US cents at 11:06 a.m. in Wellington.

Inflation accelerated for the first time since the second quarter of 2022 when it reached a 32-year high of 7.3%.

The RBNZ began lowering the OCR in August last year and has since been one of the world’s most aggressive cutters, with a cumulative 200 basis points of reductions.

While the economy is growing modestly after a sharp slump that saw gross domestic product contract 2.1% in the six months through September 2024, confidence and investment remain weak. Last week, the central bank said it expected higher US tariffs and uncertainty about the global trade environment to deliver weaker-than-expected economic growth, giving policymakers scope to reduce rates further if necessary.

Money markets are pricing the OCR will fall to 2.75% by the end of the year while ANZ Bank New Zealand economists this week forecast the benchmark will be cut to 2.5% by October.

Key to the rate outlook is the pace of moderation in core inflation. Annual non-tradables inflation, a closely watched indicator of domestic price pressures, slowed to 4% in the first quarter from 4.5% in the prior period, today’s report showed. The RBNZ tipped 3.8% in its February projections.

Rents and local government land taxes were the largest contributors to the annual inflation rate, the statistics agency said.

Imported or so-called tradables prices rose 0.3% from a year earlier.

Other Details

• Non-tradables prices increased 1.1% in the quarter; economists expected a 0.8% gain

• Tradables prices rose 0.8% in the quarter, matching estimates

• Core inflation excluding food, energy and fuel was 2.6% , slowing from 3% in the fourth quarter