New Zealand inflation slowed more than economists expected in the third quarter as the central bank’s aggressive interest-rate hikes curbed household spending.

The annual inflation rate fell to 5.6%, a two-year low, from 6% in the second quarter, Statistics New Zealand said Tuesday in Wellington. Economists expected 5.9% while the Reserve Bank had forecast 6%. Consumer prices advanced 1.8% from three months earlier, less than the 1.9% median estimate.

The RBNZ this month maintained the Official Cash Rate at 5.5% and said policy may need to be restrictive for a sustained period of time to get inflation back into its 1-3% target range by the second half of 2024. Investors reduced bets on another rate increase after today’s report.

“We are winning the war on inflation,” said Jarrod Kerr, chief economist at Kiwibank in Auckland. “Today’s numbers significantly reduce the likelihood of any further hikes from the RBNZ. Whatever probability there was before today’s numbers, it’s closer to zero now.”

The New Zealand dollar declined. It bought 59.03 US cents at 11:17 a.m. in Wellington from 59.28 cents beforehand.

Inflation slowed despite a surge in global oil prices, which drove up domestic fuel costs, and record immigration.

The RBNZ on Oct. 4 acknowledged the risk that domestic demand could remain resilient for longer, prompting some economists to forecast the OCR won’t be cut until early 2025.

Annual non-tradables inflation, a closely watched indicator of domestic price pressures, slowed to 6.3% from 6.6%, but was still higher than the RBNZ’s projection of 6.2%, today’s report showed.

Nine of the 11 main groups in the consumers price index basket increased in the quarter. The main drivers were food, fuel, construction costs and rents, the statistics agency said.

Other Details

• Non-tradables prices increased 1.7% in the quarter; economists expected 1.8%
  • Led by construction and rents
• Tradables prices increased 1.8% in the quarter; economists expected 2.4%
  • Led by fuel
  • Tradables rose 4.7% from a year earlier
• Prices for construction of new houses were up 0.6% for the quarter and 5.0% for the year
• Gasoline prices rose 16.5% in the quarter
• Consumer prices excluding food, fuel and energy rose 5.2% from a year earlier. The RBNZ publishes its own core inflation measure later Tuesday

--With assistance from Ainsley Thomson.

(Updates with economist’s comment in fourth paragraph)