Sales Volume Slump: Inside the 4.1% CPI Print and the Path to September

Nick Goodall (00:07): Kia ora and welcome to the New Zealand Property Market Podcast brought to you by Cotality for the 27th of July 2026. I'm Head of Research, Nick Goodall, and today I'm joined as per usual by our Chief Economist, Kelvin Davidson. Kelvin, hope you're keeping warm this morning. It's a bit of a chilly one throughout the country, but let's get straight into things today with the release of our monthly Chart Pack from last week. Sales volumes are probably the key thing to talk about, some of the data within there. I suppose it really just reflects the weakness of the market at the moment, particularly when we're comparing year-on-year. Do you want to take us through the detail from the Chart Pack as it pertains to sales volumes?

Kelvin Davidson (00:46): Yeah, for sure. I can tell you there's a bit of a chill in the air in Canterbury this morning, that's for sure. And a bit of a chill in the property market too, maybe. For sales volumes, we've had six falls in a row now when you look across private sales and real estate agents, adding in those private deals. Six falls in a row year-on-year. Going back to the start of the year, we were anticipating some growth in sales. Now actually, it's been going the other way, if anything. Now these aren't big falls, it's not collapsing, and the level of sales is still relatively normal, I suppose you'd say. But compared to that market outlook we had of possible growth, it's just showing there's still caution out there. Buyers and sellers are in a reasonably cautious mood; no one's in any rush. Certainly, buyers aren't needing to rush with a lot of listings on the market.

But then we're not really seeing forced selling either. Some sellers are having to drop their prices a little bit, but there's no real mass unemployment or anything like that. There's a story on Radio New Zealand this morning just around mortgagee sales, how low they still are, and people are finding a way to keep servicing that debt. So from both sides of the equation, no one is really rushing, and I guess it's just resulting in a reasonably soft level of activity.

To get really precise, we've had 43,183 transactions so far this year across that first six-month period, down by 4.2% from the same period last year, which was 45,081 sales. It's down a bit—4% compared to where we were thinking we'd be, which was up maybe 5% or 10%. It's quite a big gap compared to that, but things aren't collapsing, and as I say, the number of sales is around about normal. Maybe it's a touch below average, but not too bad. Certainly higher than where it was back in '22 and '23 when we were at 40-year lows for sales activity. I think it's ticking along. We've had six falls in a row, but it's not collapsing, and I guess just highlighting that caution that's out there from both sides of the equation.

Other things in the Chart Pack: no real change in terms of values or what we're seeing for listings or those buyer groups we've covered off over the past couple of weeks on the podcast. First-home buyers really strong, mortgaged investors just getting a little bit more cautious perhaps. Those things are ticking along, and sales are pretty low or at least the growth has turned negative in the past few months too.

Nick Goodall (03:24): Exactly. I think that context is important, right? It's not just necessarily the comparison year-on-year. It's the comparison to where we expected it to be, because we did expect that growth to come through. Now there's no surprise as to why this is. We know the uncertainty, we know with the global economic shock that's going on right now, the fact that it's showing a weaker economy here as well, higher inflation—all these things are playing out. So there's less turnover in the property market.

One thing I try and point out sometimes with this is that everyone goes, "Well, what does it really matter? Real estate agents aren't doing as many deals, so their wages are coming down, their commissions aren't there as much." But there are so many other things that are connected to the property market as well. The businesses that, when there's more turnover, they're getting more jobs, more business, and so that does lead to more growth in the economy as well. When we're talking about sales volumes—not values; values I'm happy to see constrained and restrained for a long period of time, whatever needs to happen—but when it comes to volumes, there is definite economic activity that stems off the back of a transaction happening in the residential property market. That's why we pay close attention to it. It is a good indicator of the broader economic situation. The fact that it is weaker than last year when we were expecting it to be higher, that does tell you quite a bit about what's going on.

I did just pull out some of the regional data as well, mostly just for the main centres because there is some difference there. Dunedin was the only main centre that saw some growth over the last three months compared to the same three months the year before, up 7.4% actually. Though interestingly, when you look at the monthly data, June did dip itself by 4% year-on-year. Partly this is a good indication, and same with Tauranga actually, as to why we often report this as a three-monthly change year-on-year. Because the monthly sales volumes can jump up and down. It can depend sometimes on how many working days there are in that month, how many Fridays there might be, which is when more deals get done as well. We do extend out the data we're tracking to get a better feel and not jump at a trend that's not real.

Tauranga is another example of that. It's basically been weak for a year. Eleven of the last twelve months have been down year-on-year, but in June sales volumes were up 38% compared to June last year. But again, when you look at it on a longer-term chart, you can see that June sales volumes in Tauranga last year were very weak for one reason or another. That three-month rolling measure that we track on a consistent basis is really important for that reason.

Outside of that, Christchurch was down 1.1%. I know we'll probably touch on expectations for the Home Value Index later on, where we might start to see even Christchurch starting to slow down as well, but sales volumes in Christchurch were down 1.1%. Auckland, though, the weakest of the main centres, down 7.8% over the last three months. So again, just continued weakness in that largest market as well. Lots of listings up there, demand has slowed down, relatively expensive prices in general, even though we have talked about lots of creation of townhouses and they're at a relatively affordable position, and overall affordability metrics are okay in Auckland. I still suspect that middle part of the market we've talked about where those movers are typically active, that'll be something holding back that Auckland market in terms of turnover as well. You've got to weigh all those things in there.

That's what the Chart Pack does—tries to pull all those massively different datasets together, talk about the broader market. One of your first pages just has an eight-bullet-point summary of what's going on. It's worthwhile looking at some regional detail there, certainly going into the economic factors, those deeper market factors, and splitting the market by the upper tier and middle and all that sort of stuff too, so well worth going and checking that one out. I think that's a decent overview of that. Anything else on sales volumes or the Chart Pack that stirred in your mind then?

Kelvin Davidson (07:18): Not too much. I guess just reiterating that it's not just real estate agents that are generating business from transactions. You've got property valuers, think about selling a house, you get a tradie in to touch it up, paint it up, fix the cupboard, whatever. There's that sort of activity and retailing as well. People when they move into a new home tend to get some new furniture. The old stuff might not fit or it might look a bit ratty. There is a lot of associated services that go along with house transactions, as well as construction, to be fair. New builds are... there's this whole talk of housing being unproductive, and maybe there's something in it, but there's also those associated services, and obviously generating new builds generates a lot of work for tradies and that sort of thing. Nothing's ever straightforward, I guess.

Nick Goodall (08:08): Exactly. Not one stat rules them all, that's for sure. The other big release last week was the CPI inflation data for Q2. Headline figure, of course, up to 4.1%. Slightly above expectation, especially the expectation of the Reserve Bank. I know that their original forecast back in May said it would likely be 4.2%. When they had their Monetary Policy Review a few weeks ago, they adjusted that to 3.9%, and it ended up in between those two things. 4.1% was probably a roundabout consensus of all the other economists that published their forecasts as well. So it wasn't too bad compared to expectation, even if it's slightly above the Reserve Bank's, which is what matters.

Do you want to get into some of the detail here, Kelvin? Obviously, there's a bunch of measures they talk about—core inflation, stripping out petrol and diesel prices and energy and all these other items. Can you give us your take on where this actually lands and what it means for the future, how bad this spike might be, and ultimately what the implication is for the OCR? I know usually this is the case, but even more so at the moment, we do tend to ask, what does everything mean for what the Official Cash Rate is going to do at the next decision, which in this case is early September from the Reserve Bank? Your interpretation of the CPI data, roundup of the other bank economists' takes on it too? Where are you at with it?

Kelvin Davidson (09:33): I've got a lot of numbers in front of me so I'll try and set them out relatively clearly. The headline number was 4.1%. You can quibble about percentage points here and there. It was generally in line with what people had been anticipating. For me, it was up quite a bit from 3.1% in the previous quarter and also above target. I guess what you keep coming back to is the Reserve Bank has this 1% to 3% target for headline CPI inflation over the medium term. At 4.1%, it's uncomfortably high. I suppose that's what the bottom line is here. It was the highest rate since Q4 2023. We had 4.7% back then, so you're talking almost three years ago in terms of the inflation rate. In some ways, no surprises. We know fuel has been an issue and other things have been going up as well. No huge surprises, but it's uncomfortably high compared to that target.

I'm always in two minds about core inflation and trimmed means, because if you take out everything that goes up, well, isn't that convenient? We've got no inflation. I'm always a wee bit cautious about that. But I also take the point that when you're thinking about second-round inflation and underlying drivers, the things that the Reserve Bank can really try and control, you do have to look at a measure that takes out some volatility. There are two sides of the story here.

If you take out fuel—particularly petrol here, because that's the big thing in terms of households; they're not necessarily buying diesel, diesel's more for the productive side of the economy, the Consumer Price Index relates to households—so they're spending a lot on petrol. That's the big thing here. When you take that out, Stats New Zealand reckoned that inflation would have been somewhere around 2.9% or 3%. If you strip out petrol, yes, inflation might not look quite so scary, but the fact is people are still having to spend a lot on petrol. So like I say, I'm in two minds on that, but it does show the scale of change and how big of an influence that's been, particularly in the past four months that these figures relate to.

But other things went up too. Electricity was up 12% year-on-year, council rates up 9%. Stats New Zealand reckoned that combined, those two things accounted for about one-seventh of annual inflation. Again, if you take out petrol, electricity, and council rates, you've got inflation of sort of 2.5%, comfortably within that target band. It goes to show that there are some volatile things you take out and you've got a steadier underlying picture. But coming back to my point, well, isn't it convenient if you take out everything that goes up you've got no price pressure. It's six of one, half a dozen of the other.

But on the whole, the numbers—it sounds weird to say the numbers weren't terrible, but it's still a bit uncomfortable for the Reserve Bank. One thing they'll take a little bit of comfort from is that the non-tradable inflation, or that domestic measure picking up things like rents which are still pretty soft, actually went down ever so slightly from 3.5% in Q1 to 3.4% in Q2, so a little bit of comfort there. It shows that pretty much all of the acceleration in inflation in Q2 came from tradable stuff, so things like petrol. Tradable inflation actually shot up from 2.5% in Q1 to 4.9% in Q2, so that's where the problem is. Again, no surprises. We know petrol and fuel and imported stuff is problematic.

There are all those ways of cutting it, and some of the bank economists were feeling a little bit less panicked about inflation, while others had a tone of, "Yeah, this is pretty problematic, isn't it?" It depends how you interpret the figures, like with a lot of things. But for me, the Reserve Bank might take a little bit of comfort from that non-tradable number perhaps not accelerating away too badly. They might interpret that as going, "Yeah, well, we don't necessarily have to worry about second-round inflation emerging right now." It doesn't mean it won't emerge, and they're trying to act in a forward-looking way and think about not what's happening necessarily right now, but what might be happening 6, 12, 18 months down the track, contingent on what they actually do with the OCR now. There's lots of circularity in here.

But on the whole—and I think one of the bank economists picked up on this—a big thing in second-round inflation is expectations. It's not so much what's happening now, but what households will expect to see in 6 or 12 months, and therefore what they might factor into their wage demands. There is a school of thought that says households don't really take their cue from core inflation. What they see is the headline rate, 4.1%. They go, "That's not great, I'm going to ask for higher wages if I can," notwithstanding that our unemployment rate is above average right now. You can argue about what's core and take out this and that, but there's a school of thought that says actually what drives households' inflation expectations is simply the number they see in the news, that headline overall CPI number. And so probably that's what the Reserve Bank will be thinking about most. And the fact is, like I said at the start, that's above target.

How do I wrap it up? There's lots of numbers in there. It wasn't a horrendous number, but it's above target and still a concern. I don't think in the end it changes too much. There was a pretty consensus expectation that we'll see that Official Cash Rate go up again in September. I think it's the 2nd of September. I don't think these numbers really change that. You could find good things in them, you could find bad things, but not enough either way to really shift that decision. Unless something changes between now and then, which of course it could, right now I think these numbers don't really sway it too much. We're probably looking at that next rise in September as they try to get the OCR back to a so-called neutral level. That's my take on it.

Nick Goodall (16:07): I agree with that. Is there anything in there to change them on the track they talk about, which is still trying to get the OCR back to its neutral level of 3% to 3.25%? As you said, there's nothing in there really to change that expectation. I do think there's a bit in there for everyone. If you want to look for reasons why you shouldn't lift the Official Cash Rate on the 2nd of September, you can find reason in there, right? It's usually looking at that core inflation data and saying, "Yeah, it's within the band." If you strip out petrol and diesel prices, then it's not so bad.

Then it's about saying, well, if the expectation is that we do get de-escalation in Iran and the Strait of Hormuz opens again soon—and I know peace talks are on and off again and maybe they're looking a bit more positive again this morning, though there are questions as to why that might be—I think there's definitely things in there that say we can justify saying it's not that bad. Once we get back to some level of normality with getting petrol flowing around the world, you're going to see that petrol price come back down again, and then you're just looking at the inflation of everything else. So it'll be fine. Notwithstanding the fact that electricity prices and council rates are still pretty expensive. But again, they can't really keep going up at the same rate they have for the last few years. I don't think they can. You'd expect those to work their way through the system. So you could say there's justification here that shows that medium-term inflation gets back to somewhere closer to 3%, so you don't have to panic and fight against this inflation right now because you're just going to do more damage than you want.

Equally, you could still look at that same data and go, "But even if core inflation—when you strip out these things—is at 2.5% to 2.9%, depending on the core inflation measure you're using, that's still above the midpoint of 2%." In an environment where you take out these big volatile things, there's still actually inflation that's getting towards the higher end of the band, so you probably still want to make sure the Official Cash Rate is less stimulatory because you still want to see inflation come down. That's equally a strong argument to say it's still too high even when we take out these massive volatile things, and to be honest, how long could they last? That spike could still be around for a while.

It depends what you want to see or justify, but ultimately what always matters is the Reserve Bank's commentary. That's why I go right back to that earlier point: is there anything here to change them on their track, which has been a pretty consistent communication that says we are still in a stimulatory phase, we still have an inflation problem, and we want to get back to neutral. That expectation is that we get back to neutral by the end of this year, or if not the end of this year, early next year.

September still feels like, if there's any time you want to get ahead of these things, you do it sooner rather than later. You're not going to wait for the one in late October. You're probably going to do it in September, then you'll have a bit more data between then and late October before you can really assess what impact that has had. How much of these global impacts of inflation flowed through to real prices in New Zealand? You'll get a bit more data by October, so you'd have that comfort. Going back to one of the old terms they used to use, the "path of least regrets," it does feel like they're going to err on the side of caution, lift sooner rather than later, assess later on, and they can always hold for longer or maybe there'll be a drop sometime next year depending on how inflation goes. If we do see the economy contract so much that it's putting more downward pressure on inflation, they can adjust for that later on. It does feel like that's their mentality. It is always a guessing game as to how they are reading things compared to what some of the bank economists might say or expect or want to see, but that's kind of what I always come back to.

I agree, ultimately we probably still see that lift. It is still five or six weeks away to that September decision, so there's still data to come out between now and then. The key one, of course, being the 5th of August, which I think is next Wednesday, when we get labour market data for Q2. Unemployment data, what the participation rate is, and the detail behind that. There were some stories about it being hard for young people to get jobs right now. I think the youth unemployment rate is closer to 20%. There are some pretty big sections of our economy and labour market that are suffering right now. For now, the Reserve Bank seems to be mindful, but of course they're not targeted on that, and so they'll acknowledge it but still say inflation is the worst of all evils, so we'll continue to fight against that and the lift will do that. Still time between now and then, but I don't think there's anything here to shift them off their track of doing one more in the short term, getting closer to neutral, and taking that extra time between September and October to assess the impact. We're probably sitting in a similar position, but you can absolutely find any detail you want in there to justify your position.

The only other thing I wrote down that maybe we should touch on is that rents were up 0.1% over the quarter, so only very slightly up, and they've risen only 0.5% over the last year. Not very much rental growth. You touched on it earlier. That flows through to less yield growth for property investors, and we've seen their activity reduce over the last six months as well. This is all playing together. That annual rise of 0.5% is the weakest we've seen in more than two decades, so it just shows how tough it is out there for property investors and landlords, but of course great for tenants that their rents aren't going up sharply either. That's partly a measure of that second-round inflation too. It could be a good sign that we're not going to see this flow through to greater increases in things like rents and wage increases, but it is still only one factor. We don't want to get too carried away. A pretty decent coverage of the CPI data. Anything else on your mind before we look at what else is in the news and what's coming up this week?

Kelvin Davidson (22:26): Just a mathematical technicality I suppose, people will have heard it before, but keep in mind inflation is a rate of change. If petrol is $3 now and $3 in a year's time, it might still be expensive, but you'll have no inflation. The CPI will be zero, if everything else stayed unchanged as well. Just keep in mind there's a big difference in terms of what the Reserve Bank is thinking about between the level of prices and the rate of change, and it's that rate of change that they really care about. Petrol could go from $3 to $2.95 in a year's time, might still be incredibly expensive, but you'd have deflation, inflation would be negative. So there's just a technicality there to keep in mind.

Nick Goodall (23:11): That's a good point. And we don't actually see prices get much cheaper over time either. Once they go up, they do seem to be systematically changed. That's not with everything, of course. There will be falls in prices of some things. But unfortunately when you go through spikes in inflation, you don't necessarily see that stuff become reversed. It sits at a high level. Now petrol is probably a little different; it definitely is a volatile product, of course. So we could see that come back down to hopefully something back in the realms of two bucks something, as opposed to the high twos and into three plus. Outside of that, things like council rates or insurance premiums aren't going to suddenly return back to where they were a year or two ago, that's for sure. Some of these things get embedded, which, as you say, makes everything very expensive, and even though the rate of change might slow down, it still remains expensive, especially if you're not getting that increase in your wages to counterbalance that. So another good technicality to point out, thanks for that.

The other thing around CPI, so we're not quite done yet, was that we did get an official announcement from Stats NZ last week talking about moving to an official monthly CPI data release, testing to start in early 2027. Still some way away, and the expectation on their timeline was to have it essentially productionised, being used as a core Tier-1 statistic for measuring CPI, which is what the Reserve Bank will of course be measured by, in August next year. Again, some time away. We don't want to get carried away with this, but of course any time we're moving to more frequent release of data, especially official Tier-1 statistics like CPI data, is obviously a good thing. We look forward to that; it's some time away and not going to have too much influence in the short term, but worth touching on.

Otherwise this week, the big one to set expectation for is the July Home Value Index, which will be out to media on Friday and publicly released on Saturday the 1st. Hope that doesn't mean too many media calls on your Saturday, Kelvin, or flowing over to me! I think it's good to have that out on the 1st of the month, so we look forward to seeing the official data come out for that later in the week. As we usually do, we have had a look at our weekly index, which is published on our website for Auckland, Wellington, and Christchurch. Essentially we're going to see that weakness continue through, right? We know that as volumes aren't quite as strong, that typically means that values won't be growing either. As I touched on earlier, Christchurch in particular maybe even sees values flat or slightly negative, which has been relatively unusual for the Christchurch market over the last wee while. Anything else you wanted to talk about from the potential data from the Home Value Index release this week? Or any thoughts on the monthly CPI before we wrap up property and economic chat?

Kelvin Davidson (26:01): I think you've covered all of that. In a nutshell, it's going to be another flattish HVI result based on what we can see so far. Be thinking of creative ways to create some interest in that, because it could be pretty flat again.

Nick Goodall (26:15): You'd be banning yourself from using terms like "more of the same".

Kelvin Davidson (26:18): That's right. "Tracking sideways" or something.

Nick Goodall (26:22): Exactly. Or "plateaus", I suppose plateau hasn't been used as much, so maybe you can throw that in there. All good, mate. Well, we will leave the property and economic chat there. Probably doesn't feel like as much to catch up on from a personal perspective. Certainly from my end, a pretty quiet weekend, typical stuff with family sport and whatnot. Less sport on TV to get hold of, although I know the Commonwealth Games are in action. It does feel pretty low-key; of course, they've stripped back many of the sports. The one that I've probably attached myself to was watching a bit of 3x3 basketball, which... maybe part of it is the fact that the 3x3 Tall Blacks—if they're called that—seemed pretty decent at it. I was catching a bit of that last night and highlights of all the medal-winning moments, but otherwise it doesn't feel like it's getting as much coverage as it usually would, and as I said, maybe that's partly because there have been fewer sports involved in that. Otherwise, mate, I know you were away in Hanmer over the weekend. Must have been pretty chilly down there, mate.

Kelvin Davidson (27:14): Yeah, it was. It's not much fun going around the hot pools in bare feet on concrete that's zero degrees or something. My feet still feel cold this morning! It was cool. It's a winter destination, at least in my mind. A lot of people go in summer too, but in my mind it's a winter place, and you kind of want it to be cold in some ways. There was just a chance of snow; never really came to anything, but certainly some rain on Saturday which meant it was fairly chilly, and then that cleared away. On Sunday, I mean, a crazy frost. Our car was sitting outside and we got up early-ish and you couldn't actually open the doors, they were just frozen shut. So pretty chilly, and the downside of bare feet at the hot pools is not cool, but we got a log fire inside, so we were okay. Can't complain too much, the family enjoys getting away, so we loved it.

Nick Goodall (28:10): Good on you, mate. Your feet feel like one of the things that just takes so long to heat back up again, so I totally can understand that. It was pretty wet and crappy here on Saturday and we had a storm roll in, which mostly missed us, but it was a pretty rough one on Saturday. But a nice morning this morning, although again cold for Wellington. I think it got to one degree around the place, but has actually fined up to a nice day, so we'll take that. But it certainly feels like we're in the depths of winter now when you're getting those frosts, and then the storm rolls in as well, it's not exactly ideal times.

Kelvin Davidson (28:44): For sure. Like I say, I've got the heater cranking here this morning, but the feet still feel a wee bit cold, hands are a wee bit cold. But I can see the sun, so... first world problems.

Nick Goodall (28:56): Exactly. No, all good, mate. Well, we will leave it there for today. Thanks very much, as per usual, for your insights. Always good to get into the detail of something like the CPI data where there's plenty to chat about, so I appreciate that. I just want to say thanks very much for listening. Please do feel free to get in touch with any questions or feedback, whether it's on the CPI data, on the Chart Pack, or you want to get a link to anything, please do let us know. But that'll do us for today. Just leaves me to say thanks again. My name is Nick, he's Kelvin. You've been listening to the New Zealand Property Market Podcast. Mā te wā.

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