In the fourth quarter of 2024, New Zealand’s retail sales increased by 0.9% quarter-on-quarter, surpassing the expected 0.6% and recovering from a previous decline of 0.1%. Year-on-year, sales grew by 0.2%, compared to a decline of 2.5% previously.
Despite the improvement in retail sales, it is not anticipated that this will alter the Reserve Bank of New Zealand’s direction. The central bank is expected to implement two to three rate cuts of 25 basis points each in the coming months, extending through July.
This rebound in consumer spending suggests that demand has picked up slightly after a period of decline. However, the increase remains moderate, which suggests that broader economic conditions may still be constraining household spending. The fact that annual sales growth remains weak, despite a better quarter, points to lingering pressures that could persist.
From the central bank’s perspective, this does not present a strong enough case to shift its expected course. Inflation and broader economic indicators will remain the primary concerns. With rate cuts already being considered, policymakers are likely to focus on underlying inflation trends rather than temporary fluctuations in spending. Central banks typically look for sustained changes in demand before adjusting their stance, and a single quarter of stronger data does not meet that threshold.
For those navigating the rate environment, attention should remain on inflation reports and labour market data. A higher-than-expected boost in hiring or wage growth could introduce uncertainty around upcoming cuts. However, as long as these factors remain contained, the outlook for monetary easing is unlikely to change.
Market pricing has already accounted for rate reductions, with expectations forming around at least two adjustments before the middle of the year. If consumer demand continues to strengthen beyond this report, there could be speculation about fewer cuts. On the other hand, if growth in spending tapers off again, anticipation for further easing could intensify.
For positioning in the near term, the greater risk would come from any unexpected inflation pressures forcing policymakers to delay cuts. Any surprise strength in price increases could lead to a reassessment, which might cause market movements in response. Conversely, if inflation trends lower and demand weakens again, additional easing expectations could gain traction.
With this in mind, monitoring inflation releases and central bank commentary remains important. While this latest data suggests some resilience in the economy, broader trends remain the determining factor for any change in the projected rate path.
