Rental inflation a thorn in Reserve Bank’s side


Bank economists and financial markets have become more hawkish on New Zealand interest rates following stronger-than-expected labour force data.

Last week, economists at ANZ changed its interest rate projection, “forecasting 25bp hikes in both February and April, taking the OCR to 6%”.

“We are now forecasting cuts from February 2025, ultimately taking the OCR back to 3.5% as before”, ANZ economists said.

Westpac also flipped from anticipating rate cuts late this year to rates remaining on hold through 2024.


“Resilience in domestic inflation pressures and the labour market will be of concern to the RBNZ”, Westpac noted.

One persistent thorn in the Reserve Bank’s side is New Zealand’s stubbornly rising rental inflation.

According to data released last week by Statistics New Zealand, rental prices for new tenancies (the flow measure of rental prices) surged by 2.5% over the month to be up 6.4% in the year to January 2024.


This pushed overall rental inflation to 4.5% in the year to January, up from 3.8% the year prior:

NZ rental inflation

The key driver of the stronger rental inflation is New Zealand’s net overseas migration:


There was an annual net overseas migration gain of 126,000 in the December 2023 year, according to Statistics New Zealand.

The net overseas migration gain is the largest for a calendar year and compares with the provisional annual record of 134,400 in the October 2023 year.


Citizens of India, the Philippines, China, Fiji, and South Africa accounted for the majority of the 2023 net migration gain.

This follows a gradual reduction of COVID-19-related border restrictions beginning in early 2022, as well as the loosening of immigration policies.

NZ NOM by country

Much like Australia, historically high net overseas migration is placing upward pressure on rental inflation, making it harder for the Reserve Bank to cut interest rates.

Nevertheless, CPI inflation is still falling in New Zealand and the economy is very weak.

NZ CPI Inflation

Therefore, like in Australia, I still expect interest rates to be cut later this year.

About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.