Nicola Willis Celebrates Drop in Inflation, Predicts Relief for Kiwi Households

Willis highlighted that the domestic component of inflation, or non-tradables, declined from 4.9% in the year to September to 4.5% in the year to December.

Finance Minister Nicola Willis has welcomed the decline in domestic inflation, emphasizing its potential to bring relief to New Zealand households through lower mortgage rates and reduced living costs.

Stats NZ reported that inflation was 2.2% in the year to December, marking the second consecutive quarter that inflation has stayed within the Reserve Bank's target band of 1-3%. This achievement is seen as a positive indicator for economic stability and growth.

Willis highlighted that the domestic component of inflation, or non-tradables, declined from 4.9% in the year to September to 4.5% in the year to December.

“Decisions about the Official Cash Rate (OCR) remain the responsibility of the Reserve Bank, but the decline in domestic inflation is undoubtedly good news for people with mortgages,” she said.

The Finance Minister pointed to other economic data showing spare capacity in the economy, which suggests there is room for further interest rate reductions in the near future.

“This decline in inflation reflects the effectiveness of the Government’s disciplined approach to public spending. Our measures to reduce inflationary pressures are working, and the benefits are starting to flow through to households.”

According to Willis, lower inflation and interest rates provide a strong foundation for economic growth, leading to increased investment, job creation, and higher incomes.

Recent Reserve Bank data supports her optimism. For the first time since September 2021, the average interest rate on residential mortgages fell in November. Further reductions in the coming months could ease cost-of-living pressures, freeing up household budgets and boosting spending in local businesses.

Expanded Context: Willis’s comments come as the Government continues to balance fiscal prudence with support for economic recovery. Lower inflation not only benefits homeowners but also signals a healthy alignment with the Reserve Bank’s long-term economic objectives.

While the Reserve Bank Governor will ultimately decide on future OCR adjustments, economic analysts are optimistic that the drop in non-tradables inflation signals a broader trend of stability.

Business leaders have also expressed hope that the easing cost pressures will stimulate both consumer and business confidence, paving the way for sustained growth.

“This is a positive step forward for the economy, and it underscores the importance of managing public finances responsibly. The Government’s focus remains on ensuring these gains translate into real benefits for all New Zealanders,” Willis concluded.

The upcoming quarters will determine the pace of further mortgage rate adjustments and whether the economy continues to meet inflation targets, offering much-anticipated relief to households and businesses alike.