The latest Consumer Price Index (CPI) figures, released by Stats NZ, reveal an annual inflation rate of 2.2% for the December 2024 quarter, compared to the same period in 2023. This marks the second consecutive quarter that inflation has stayed within the Reserve Bank of New Zealand's (RBNZ) target band of 1–3%, offering positive signals for the economy.
One of the largest contributors to the annual inflation rate was rent, which rose by 4.2%, accounting for nearly 20% of the total increase. This steady rise in rent inflation underscores the growing demand for rental properties, even amidst economic challenges. Meanwhile, non-tradable inflation, which reflects domestic cost pressures, slowed to 4.5%—below the RBNZ’s forecast of 4.7%.
On a quarterly basis, the CPI increased by 0.5% from September to December 2024. Key contributors to this rise included international air transport (up 6.6%), second-hand cars (up 4.7%), and rent (up 0.8%). Notably, lower vegetable prices, down 11.5% due to seasonal factors, helped offset some of the overall inflationary pressure.
Impact on the Official Cash Rate
Despite the CPI increase being marginally higher than the RBNZ’s forecast of 2.1%, economists widely expect a 50-basis-point cut to the Official Cash Rate (OCR) in February 2025. According to ANZ senior economist Miles Workman, the slight variance in headline inflation is unlikely to deter the Reserve Bank from further easing monetary policy, as it aligns with the broader trend of declining inflation.
This anticipated reduction in the OCR could have significant implications for Auckland's commercial property market. Lower borrowing costs are expected to stimulate buyer activity, particularly for high-quality properties in prime locations. However, properties in secondary locations may continue to face challenges unless priced competitively.
Implications for the Property Market
The CPI data highlights two important trends for the property sector:
• The consistent increase in rent inflation reflects strong demand for rental properties, which landlords should consider when assessing potential yields.
• As rent prices climb, tenants may face increased financial challenges, making proactive property management crucial for landlords looking to maintain stable income streams.
For leasing, lower interest rates may encourage businesses to reconsider their property needs, potentially spurring activity in 2025. However, the current oversupply of larger secondary properties and the shortage of smaller spaces may still shape market dynamics in the coming months.
Looking Ahead
With the OCR expected to drop further, Commercial Realty anticipates increased market activity across sales, leasing, and property management in 2025. Our team is here to help you navigate these changes and make informed decisions about your commercial property investments.