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New Zealand’s inflation rose to 2.5% in Q1 2025, the first increase in nearly three years and above the forecasted 2.4%. Quarterly consumer prices also climbed 0.9%, exceeding expectations. The rise comes as the country’s recovery from a prolonged recession remains fragile, with weak business confidence and limited investment.

Cryptocurrency’s Emerging Influence

Cryptocurrency’s growing role in New Zealand’s financial landscape is starting to influence inflation. As more investors turn to digital assets, crypto valuations affect capital flows and shape consumer spending, especially in areas like retail and digital services. Rising trading volumes also add speculative pressure to markets, prompting policymakers to factor crypto trends into interest rate decisions.

This shift isn’t limited to investment alone; more spending is now happening directly in crypto, including through platforms like crypto pokies, where digital wallets are used for entertainment just as much as for trading. Gambling writer Vlad Grindu emphasises how Techopedia’s top picks for NZ pokies offer players thousands of provably fair games to choose from, near-instant payouts through diverse crypto coins, and exciting bonuses such as welcome rewards, cashback offers, and free spins, highlighting how crypto is becoming deeply embedded in both financial behavior and everyday entertainment.

Potential for Additional Rate Reductions

Despite rising headline inflation, analysts believe the central bank maintains flexibility for further monetary policy easing. Since August 2024, the RBNZ has implemented significant reductions to its Official Cash Rate (OCR), cutting it by 200 basis points to 3.5%. Leading bank economists anticipate further reductions, with forecasts suggesting the OCR could drop below 3% before year-end. Some projections indicate it might reach 2.5% by October, particularly as the central bank works to strengthen economic recovery while preventing inflation from falling too low over the medium term.

Money markets have already incorporated expectations for rates to decrease below 2.75% by December, indicating strong sentiment for continued monetary easing.

Inflation Components and Domestic Factors

Domestic inflation (non-tradables), covering prices not exposed to global competition, eased to 4.0% from 4.5%, slightly above the RBNZ’s earlier forecast of 3.8%. On a quarterly basis, non-tradables rose 1.1%, outpacing economists’ expectations.

The main contributors to annual inflation were higher rental costs and local government land taxes, which continued to drive household expenses upward. Imported (tradables) inflation stayed modest at 0.3% year-on-year, with a 0.8% quarterly rise matching forecasts.

Core inflation, excluding volatile items like food and fuel, eased to 2.6% from 3.0% in late 2024. With external pressures limited, domestic costs remain the key focus. This softening likely supports the RBNZ’s cautious approach as it balances economic risks with its policy goals.

Global Uncertainties Impact Outlook

The external environment complicates domestic inflation and interest rate projections. Increasing US tariffs are leaving global stock markets on edge, and persistent international trade uncertainties continue affecting export-dependent economies like New Zealand. The RBNZ recently acknowledged these global headwinds would likely constrain economic growth more than previously estimated, providing additional justification for potential policy easing in the coming months.

The New Zealand dollar showed minimal immediate reaction to the inflation report, remaining near 59.36 US cents, while two-year government bond yields increased slightly following the data release.