Can the RBNZ claim victory over inflation? What economists say

• Inflation is set to slow to 2.3 percent in the year ended September
• Q3 prices rise 0.8 percent: higher rates, rents, food, and insurance offsetting cheaper fuel
• The annual rate will be the lowest since March 2021
• Weaker inflation seen as justifying further hefty interest rate cuts

The Reserve Bank should be able to break out the bunting and the 'Mission Accomplished' banner this week when inflation returns to the safety of its target band.

The agency triggered the surge in inflation with its loose money policies and stimulus to combat the effect of Covid-19 on the economy.

Its strategy has taken the annual rate from 1.5 percent in March 2021 to a 34-year high of 7.3 percent in mid-2022, forcing the Reserve Bank (RBNZ) to turn inflation fighter, with meteoric rises in the official cash rate.

Kiwibank chief economist Jarrod Kerr said the RBNZ could claim victory.

"Inflation is going to return to the midpoint of their target range, so job done.

"They've won that war, and that means they can take monetary policy back to a neutral, Goldilocks level that's quite some way away from where it currently is."

But not all economists were as optimistic that the job was done.

"We hate to be party-poopers, but non-tradables inflation is still way too high - meaning if the sound of corks popping does resonate through the RBNZ building next week, they'll be celebrating global disinflation progress just as much as their own," ANZ economists Miles Workman and Henry Russell said.

Stubborn domestic prices

To be fair, Kerr also accepted that domestic-sourced inflation pressures - the non-tradables - such as rates, rents and insurance would be "frustrations" within the numbers.

The ANZ team said inflation falling back into the target band would be a major milestone and would "possibly bolster confidence among policy makers and RBNZ watchers alike that the 'inflation-genie' is back in the bottle".

But it had to be remembered that most of the sharp fall over the past year had been because imported inflation had been slowing, they said.

"The progress that has been made on the non-tradables front to date (and will continue to be made) has required a meaningful slowdown in economic activity, with many businesses and households feeling the pinch."

But the slowing of inflation posed another risk - undershooting or going through the bottom of the 1-3 percent target band.

Kiwibank's Kerr said there was every chance that next year inflation could touch "1 point something", but that should be regarded as part of the normalisation of inflation.

"You're never going to hit the midpoint of 2 percent, it will bounce around there, but they (RBNZ) will be happy about inflation expectations sitting in their target band."

ASB senior economist Mark Smith said with inflation low the RBNZ could press on with its cuts to the official cash rate (OCR).

He said another 50 basis point cut was justified to follow last week's supersized reduction.

"The largest regret now is that the RBNZ proves to be too slow in monetary policy easing," Smith said.

"The OCR over 2025 will be increasingly conditional on the still-uncertain economic outlook."