Inflation Remains Within Target as Interest Rate Relief Boosts Households

Finance Minister Nicola Willis welcomed the data, saying it signified a "return to economic stability" and credited government fiscal discipline for helping to rein in inflation.

Finance Minister Nicola Willis has declared that New Zealand has turned the corner on the cost-of-living crisis, with the latest inflation data showing continued stability within the Reserve Bank's target range. The announcement comes as households across the country begin to see relief from rising mortgage costs, potentially marking a turning point in the nation's economic recovery.

Inflation Holds Steady at 2.5%, Signaling Stability

According to figures released today by Stats NZ, the Consumer Price Index (CPI) rose 2.5% in the 12 months to March. While slightly higher than the previous quarter, the figure remains comfortably within the Reserve Bank’s inflation target band of 1 to 3 percent. This is the third consecutive quarter that inflation has stayed within this range, reinforcing the view that the period of high inflation—driven by pandemic disruptions, global supply chain issues, and geopolitical tensions—may now be behind us.

Finance Minister Nicola Willis welcomed the data, saying it signified a "return to economic stability" and credited government fiscal discipline for helping to rein in inflation.

Government Spending Cuts Linked to Falling Inflation

Willis highlighted that recent moves by the Government to rein in what she described as “wasteful public expenditure” have helped take pressure off domestic inflation. These actions, she said, have allowed the Reserve Bank greater leeway to consider easing monetary policy.

“By reducing unnecessary spending and focusing on core priorities, we have taken the heat out of inflation,” Willis said. “This has created space for the Reserve Bank to begin lowering interest rates, which is already providing relief for Kiwi households.”

Mortgage Rates Begin to Fall, Easing Financial Pressure

As inflation stabilises, banks have begun lowering their mortgage rates, with some now offering fixed-term interest rates under 5%. This trend is offering a financial lifeline to many homeowners who have struggled with high mortgage repayments following a series of rate hikes over the past two years.

While the Reserve Bank retains full independence in setting the Official Cash Rate (OCR), Willis noted that the direction of inflation and market sentiment suggests further rate cuts could be on the horizon.

“The stabilisation of inflation is good news for mortgage holders. It means they can start looking ahead to more manageable interest payments in the near future,” Willis said.

OCR Already Down Two Percentage Points Since August

The Reserve Bank has already trimmed the OCR by two full percentage points since August, and this shift is translating into real savings for borrowers. According to the Government, a two percentage point reduction in interest rates can reduce fortnightly repayments on a $500,000 mortgage over 25 years by approximately $300.

“These are meaningful savings,” said Willis. “Lower interest rates mean more money in people’s pockets and more disposable income circulating through local businesses, which supports broader economic growth.”

Domestic Inflation Continues to Ease

Another positive indicator in the latest report is the ongoing decline in non-tradable inflation—an important measure that reflects domestic cost pressures, including rents, utilities, and services. Non-tradable inflation fell from 4.5% in the year to December to 4% in the year to March.

“This tells us that demand and supply pressures within New Zealand are easing, and that our economy is adjusting to more sustainable levels of activity,” Willis explained.

Looking Ahead

Economists will be closely watching future CPI releases and Reserve Bank decisions to assess the path forward. While international uncertainties such as oil prices and global trade tensions remain potential headwinds, the domestic picture appears to be improving.

The Finance Minister concluded on a cautiously optimistic note: “We know many families have done it tough over the last couple of years. But with inflation under control and interest rates starting to ease, we are entering a new phase—one where households can breathe a little easier, and where confidence in the economy can begin to rebuild.”