New Zealand Inflation Threatens to Break Higher as Energy Costs Rise

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.

Annual inflation rate in New Zealand increased to 3% in the third quarter of 2025, the highest since the second quarter of 2024, from 2.7% in the previous period and in line with forecasts. The largest contributors were all in the housing and household utilities group, namely electricity (11.3%, the highest since the March 1989 quarter), rent (2.6%), and local authority rates and payments (8.8%). Compared to the previous quarter, the CPI increased 1%, the most in two years, following a 0.5% rise in the previous period. Local authority rates and payments, up 8.8%, was the largest upwards contributor to the quarterly rise. Vegetables, up 12.2%, also contributed, mostly seasonal rises for tomatoes, cabbage, capsicums, lettuce, and broccoli.