New Zealand consumer prices rose 3.3 percent on the year in the three months to June, down from 4.0 percent in the three months to March and below the consensus forecast of 3.5 percent. Headline inflation has been above the Reserve Bank of New Zealand's target range of 1.0 percent to 3.0 percent for 13 consecutive quarters but has now fallen for six consecutive quarters and is at its lowest level since early 2021. The index advanced 0.4 percent on the quarter after increasing 0.6 previously, also below the consensus forecast for an increase of 0.5 percent.

The fall in headline inflation in the three months to June was largely driven by the year-over-year increase in food prices slowing from 2.4 percent to just 0.2 percent. Prices for clothing also rose at a slower pace, while the price of several household goods fell at a sharper pace. Other categories, however, recorded steady or sharper price increases. The year-over-year increase in transport costs picked up from 2.0 percent to 3.5 percent, while communication prices rose 5.2 percent on the year after previous increase of 3.2 percent.

The RBNZ left the official cash rate unchanged at 5.50 percent at its most recent meeting earlier in the month. In the statement accompanying that decision, officials advised that they still expect inflation will continue to trend lower towards their target range. They also indicated that rate cuts may be considered in upcoming meetings, noting that"the extent of this restraint will be tempered over time with the expected decline in inflation pressures". Today's fall in headline inflation may be enough to prompt officials to consider a rate cut at their next scheduled policy meeting mid-August.

Consumer prices are expected to rise a quarterly 0.5 percent in the second quarter for a year-over-year rate of 3.5 percent. These would compare with respective first-quarter rates of 0.6 and 4.0 percent, the latter down from 4.7 percent in the fourth quarter.

The consumer price index (CPI) measures the changing price of a fixed basket of goods and services purchased by New Zealand households. The selection and relative importance of the goods and services in the CPI basket represents the overall expenditure pattern of New Zealand households.

The aim of the CPI is to measure price changes of the same sample of products at each outlet over time. When there is a change in the size or quality of any of the goods or services in the basket, an adjustment is made to ensure that the price change shown in the CPI is not affected by the change in size or quality.

The CPI represents $88.9 billion spent on goods and services by New Zealand households, at June 2011 quarter prices. This is based on information from the 2009/10 Household Economic Survey and other sources. The CPI has an index reference period of the June 2006 quarter equal to 1000.

A price index measures the change in price between time periods for a given set of goods and services. It summarizes a set of prices for a variety of goods and services collected from a number of outlets. The consumer price index is the most widely followed indicator of inflation. An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact. Inflation is an increase in the overall prices of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets- and your investments. Inflation (along with various risks) basically explains how interest rates are set on everything from your mortgage and auto loans to Treasury bills, notes and bonds. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion. By tracking inflation, whether high or low, rising or falling, investors can anticipate how different types of investments will perform. Over the long run, the bond market will rally (fall) when increases in the CPI are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.

The CPI is used to help set monetary policy and for monitoring economic performance. It is used by the government to adjust New Zealand Superannuation and unemployment benefit payments once a year, to help ensure that these payments maintain their purchasing power. Employers and employees use the CPI in wage negotiations.