New Zealand consumer prices rose 2.2 percent on the year in the three months to December, as they did in the three months to September. This is just above the consensus forecast of 2.1 percent and leaves headline inflation within the Reserve Bank of New Zealand's target range of 1.0 percent to 3.0 percent for the second consecutive quarter after it had been above that range since early 2021. The index advanced 0.5 percent on the quarter after increasing 0.6 previously, matching the consensus forecast.

Steady headline inflation in the three months to December reflects offsetting moves among major categorise of expenditure. Transport prices fell at a less pronounced pace and food price inflation picked up from 0.7 percent to 1.3 percent, while housing and utilities prices rose at a slightly slower pace. Education prices also fell sharply but steadily, as a result of a government rebate for early childhood education.

The RBNZ reduced the official cash rate by 50 basis points to 4.25 percent at its most recent meeting late November, following a 50 basis point cut and a 25 basis point cut at its two previous meetings. In the statement accompanying this month's decision, officials advised that they they now consider inflation to be"sustainably within" their target range and advised that they expect to cut rates further in upcoming meetings to help support a recovery in economic growth. Today's data showing headline inflation is steady within the target range is likely to support the case for another rate cut at their next scheduled policy meeting mid-February.

The consensus looks for CPI up 0.5 percent in the fourth quarter with a 2.1 percent annual increase from a year ago. That compares with increases of 0.6 percent on quarter and 2.2 percent on year in Q3. A 2.1 percent outcome would square with the RBNZ's most recent forecast. Meanwhile, core inflation looks to be moving back toward the 2 percent midpoint of the RBNZ target range.

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.