CPI breaking through 3 reignites inflation anxiety: will the Reserve Bank of New Zealand brake early? What economic cooperation will the new Prime Minister pursue on his first China visit?

1 CPI returns above 3%, putting the Reserve Bank of New Zealand in a dilemma again

 

Just as markets widely believed a rate-cutting cycle had begun, inflation has quietly returned. BNZ's latest forecast puts New Zealand's second-quarter CPI increase in 2025 at 0.8%, with annual inflation rising to 3.1% in the third quarter, above the Reserve Bank of New Zealand's 1%–3% target range.

BNZ head of research Stephen Toplis put it bluntly: “This bout of inflation noise will add to the Reserve Bank of New Zealand's headache.” He is particularly concerned about rising food, meat, fresh vegetable and energy prices, because their impact on households' real disposable incomes is “almost impossible to avoid”.

 

Official figures show that New Zealand food prices rose 4.4% year on year in May, clearly exceeding expectations. Oil prices have also rebounded as tensions in the Middle East escalate, further increasing transport and living costs. Meanwhile, slowing inflation and weak consumption in the United States point to an increasingly divergent global economic outlook, making the Reserve Bank of New Zealand's choice of path more difficult.

 

In its May Monetary Policy Statement, the Reserve Bank of New Zealand decided to lower the OCR to 3.25%, but one committee member voted against the cut precisely because of concerns about inflation expectations. With inflation now turning back up, that member may gain more supporters.

 

Although BNZ believes inflation will still fall below 2% over the medium to long term, the risk of a short-term rebound is enough to prompt market repricing. The latest market pricing shows expectations of another cut in July have cooled markedly, with only 5 basis points of easing priced in.

 

2 Meanwhile, interest rates keep falling as competition for mortgages heats up

 

Even as inflation breaking through 3 causes market concern, New Zealand's major banks have launched another battle to attract customers with lower rates.

On 18 June, BNZ announced another mortgage rate cut, lowering its one-year fixed rate from 4.95% to 4.89% and its six-month rate by 6 basis points to 5.29%. This puts it alongside Westpac with the most competitive offers among the five major banks.

 

This is BNZ's second proactive round of rate cuts in less than a month. The first came just before the Reserve Bank of New Zealand lowered the official cash rate (OCR) to 3.25%, demonstrating the bank's close sensitivity to the direction of policy.

 

Other major banks have also responded quickly to the OCR cut:

• Westpac: last week cut its six-month special rate by 20 basis points to 5.29%, while lowering its one-year rate to 4.89%

• ASB & ANZ: both lowered their 18-month fixed rates to 4.89%, the lowest since April 2022

• ANZ also lowered its six-month rate to 5.29%, while its one-year offer stands at 4.95%

   

  Latest mortgage rates by bank:

  https://www.interest.co.nz/borrowing

   

  This rapid succession of rate cuts marks a shift in bank competition from manoeuvring over margins to an intense battle for customers. With lending activity subdued overall, short-term rates in particular have become a key way for banks to attract new customers and encourage refinancing.

   

  Mortgage market adviser Cameron Marcroft said: “We have entered the ‘4.8 era’. Rates for loans with terms from 6 months to 2 years are already close to the bottom.” He noted that one- and two-year products are currently the most popular, while three-year terms are becoming “attractive”. Marcroft also stressed that, in a highly uncertain macroeconomic environment, stabilising borrowing costs has become a priority for borrowers: “Stability, at

  this stage, matters more than chasing the lowest rate.”

   

  Economists generally caution that although short-term rates have fallen to their lowest levels since the pandemic, this window of opportunity may not last as inflation rebounds and the Reserve Bank of New Zealand turns more cautious. In other words, this is a sensitive period in which borrowers should “lock in if they can”.

   

  3 The new Prime Minister's first China visit: cooperation holds promise, but breakthroughs remain elusive

   

  Today, Prime Minister Christopher Luxon set off on his first visit to China since taking office, leading a heavyweight delegation of 28 business executives. From Shanghai to Beijing, the itinerary spans two cities in four days, with back-to-back engagements and travel. This is more than a diplomatic move: it is a pivotal moment in New Zealand's search for a breakthrough in economic growth within the global landscape.

   

  Promoting New Zealand on the ground in China's market

  In Shanghai, he began a series of activities centred on trade promotion:

   

  • His first stop was the headquarters of Chinese travel giant CTrip, where he met chief executive Jane Sun for detailed discussions on reshaping New Zealand's image as a destination among Chinese travellers;

  • He then attended a business promotion event jointly hosted by China Eastern Airlines and Auckland Airport to promote two-way aviation and tourism cooperation;

  • He will also appear at a cosmetics showcase hosted by well-known New Zealand skincare brands including Antipodes, Ecostore and Trilogy, pushing for the swift removal of barriers in the cosmetics market access system;

  • He will also take part in an agricultural products showcase led by Fonterra, the Meat Industry Association and others, targeting the premium dairy and meat markets.

   

  As Luxon said in an interview before departure: “I want to rekindle awareness of New Zealand in the Chinese market, which will translate directly into tangible trade opportunities.”

   

  China remains New Zealand's leading market

   

  Over the past decade, China has firmly held its position as New Zealand's largest trading partner. Bilateral trade reached US$38,200,000,000 in 2024, spanning key export categories including dairy, meat, fruit, timber and seafood. As China's production capabilities and consumption patterns continue to evolve, New Zealand's positioning as “natural, sustainable and high-quality” stands out increasingly clearly.

   

  New Zealand's milk powder, butter and cheese remain regular features on Chinese family tables, while kiwifruit and apples are also popular among consumers in China's middle and premium market segments. With China's middle class now exceeding 500,000,000 people, demand for “high-quality food” continues to grow. This trend offers considerable scope for New Zealand agricultural products, known for their small scale and high quality.

   

  As Luxon put it: “The rise of China's middle class is a huge opportunity for us. Many of our products target niche premium markets, and there is still considerable room for growth.”

   

  Education and tourism: extending New Zealand's soft power

   

  Beyond traditional goods exports, another important task for New Zealand's visit to China is to revive international education and tourism cooperation, which has yet to recover fully since the pandemic.

   

  Figures for March 2025 show that Chinese visitor numbers had recovered to just 61% of pre-pandemic levels, while Chinese student numbers had returned to only 67%. Before the pandemic, China was New Zealand's largest source of international students and third-largest source of visitors.

   

  In response, the New Zealand Government announced that from November 2025, Chinese tourists holding valid Australian visas and entering New Zealand via Australia will be granted visa-free entry for stays of up to 3 months. Immigration New Zealand will also introduce measures including simpler visa application processes and stronger promotion in the Chinese-language market to fully revive interest in tourism and education.

   

  An education and tourism promotion event in Shanghai is the first stop on the itinerary. Luxon said: “We need to promote not only our products, but also our country's image, so that more Chinese people understand New Zealand and choose New Zealand.”

  From exports to branding: what does Luxon want to bring home?

   

  The large business delegation accompanying the visit spans food and beverages, education services, tourism operations, agricultural technology and other sectors. Beyond promoting existing products, businesses hope to explore new forms of cooperation, including “next-generation cooperation topics” such as the digital economy, cross-border logistics, green agriculture and food safety technology.

   

  Luxon has repeatedly highlighted his personal priority of “reawakening awareness of New Zealand in the Chinese market”. Particularly as competition among domestic and international brands intensifies, “getting Chinese consumers to know and remember you” is more effective than simply lowering prices.

   

  “New Zealand has been too inward-looking in recent years. We need to make our voice heard in China again,” he said.

   

  New Zealand–China economic and trade cooperation enters deeper waters

   

  Cooperation between China and New Zealand has never stopped, but it has now reached a turning point that calls for repositioning. The trade mix needs to improve, service industries need to restart, and brand value needs to grow. New Zealand's visit to China represents both continuity and an upgrade.

   

  In the vast, changing ocean of China's market, those who earn the middle class's long-term trust will capture the growth opportunities of the next decade. Are you optimistic about the future of China–New Zealand trade? Share your views in the comments below.