Inflation in New Zealand fell within the Reserve Bank of New Zealand's (RBNZ) target range of 1% to 3% in Q3, allowing the central bank to consider further significant interest rate cuts.

Statistics New Zealand reported on Wednesday that annual inflation decreased to 2.2% in the third quarter, marking the first time it has been within this range since March 2021. In Q2, inflation was recorded at 3.3%, having peaked at 7.3% in June 2022, Reuters reports.

Kiwibank's chief economist, Jarrod Kerr, stated in a note that the central bank can claim victory in its battle against inflation.

“The light at the end of the tunnel is burning brighter. Cost pressures are easing. Policy settings are still restrictive, but more interest rate cuts are coming,” he said.

Furthermore, the consumer price index increased by 0.6% in the third quarter compared to the previous quarter. Economists surveyed by Reuters had predicted a 0.7% rise quarter-on-quarter and a 2.2% increase year-on-year, while the central bank anticipated year-on-year inflation of 2.3%.

Following the data release, which was in line with expectations, the New Zealand Dollar remained relatively stable.

Since August, New Zealand's central bank has reduced the official cash rate by 75 basis points, concluding that inflation has returned to its target range of 1% to 3% and is approaching the 2% midpoint. 

The bank is forecast to keep cutting rates over the next year to boost the economy, which is facing challenges partly due to elevated interest rates.

According to ASB Bank senior economist Mark Smith, although ASB predicts the central bank will slash rates by 50 basis point next month, the “risks are tilted to more front loaded policy easing.”

The central bank has not yet succeeded in addressing non-tradeable inflation, which, according to Statistics New Zealand, fell to 4.9% in Q3, down from 5.4% in the previous quarter.