New Zealand Inflation Threatens to Break Higher as Energy Costs Rise

Annual inflation in New Zealand stood at 3.1% in Q1 2026, unchanged from Q4’s 1.5-year high and above forecasts of 2.9%, surpassing the RBNZ’s 1–3% target range. The largest contributors were in the housing and household utilities group, which rose 3.4%, mainly driven by electricity prices (up 12.5%) and local authority rates and payments (up 8.8%). Upward price pressures also came from food (4.0% vs 4.3%), mainly due to higher meat and poultry prices. Transport inflation accelerated (3.3% vs 2.6%), largely driven by increases in private transport supplies and services. Meanwhile, faster inflation was also seen in alcoholic beverages and tobacco (2.8% vs 2.4%), health (4.1% vs 0.7%), and miscellaneous (2.2% vs 2.1%), while it moderated in clothing (1.3% vs 1.7%), communication (4.6% vs 4.8%), and recreation and culture (2.2% vs 3.2%). Education inflation was steady at 2.5%. On a quarterly basis, the CPI increased by 0.9% in Q1, accelerating from a 0.6% rise in the previous quarter.

New Zealand Finance Minister Nicola Willis cautioned on Monday that inflation could climb “much higher” this year and remain outside the central bank’s 1%–3% target if Middle East tensions persist. Treasury modelling suggests a sharper peak under a scenario of prolonged conflict and deeper supply chain disruption. Inflation already stood at 3.1% in Q4, above the ceiling, with rising energy costs fueling market bets on near-term policy tightening. Willis declined to give precise forecasts, noting Treasury has yet to finalize its central scenario.

Annual inflation rate in New Zealand increased to 3.1% in the December 2025 quarter, the highest since the June 2024 quarter, from 3.0% in the previous period and slightly above forecasts. The largest contributors were all in the housing and household utilities group, namely electricity (12.2%, the highest since the March 1989 quarter), local authority rates and payments (8.8%) and rent (1.9%). Compared to the previous quarter, the CPI increased 0.6%, following a 1.0% rise in the previous period. International air transport, up 7.2%, was the largest upwards contributor to the quarterly rise, while petrol, up 2.5%, also added to the increase. Lower vegetable prices, down 16.5%, helped offset the quarterly rise, driven by seasonal falls for tomatoes, cucumbers, capsicums, lettuce, and broccoli.