Persistent price pressures keep mortgage rates in focus for 2026
ASB is now expecting the Reserve Bank (RBNZ) to start lifting the official cash rate (OCR) from July, earlier than its previous September forecast.
ASB’s latest Economic Note shows key underlying inflation gauges edging back inside – but towards the top of – the RBNZ’s 1–3% target range. The sectoral factor model eased to 2.7% year‑on‑year in Q1, while the broader factor model dipped to 2.5%. Core non‑tradable inflation, a crucial guide to domestic cost pressures that feed into mortgage rates, slipped to 3.6%, still uncomfortably high.
“Underlying pricing pressures have largely plateaued at the start of the year despite persistent 3%+ inflation,” ASB economist Mark Smith said.
Latest CPI data showed prices rising 0.9% in the March quarter, keeping annual inflation at 3.1% and just above the RBNZ’s 1–3% target band. Non‑tradables inflation held at 3.5%, while tradables eased to 2.5%. Petrol prices climbed about 3.5% and diesel more than 11% over the quarter, underscoring the mounting fuel shock. ASB notes that with core inflation already in the upper half of the target band, there is limited room to absorb further upside surprises without risking a more pronounced overshoot.
Oil shock to drive headline CPI higher
For borrowers, the real test will come later in 2026 as the impacts of the US‑Iran war hit home via higher energy and transport costs. ASB expects headline CPI to approach 4.5% by mid‑year and to finish 2026 well above 4%, raising the risk that elevated headline readings spill into wages and core inflation. On ASB’s projections, a sustained return to the midpoint of the 1–3% target range is unlikely before mid‑2027, highlighting how long higher prices could weigh on households and businesses.
ASB brings forward OCR hikes on stubborn inflation
Against that backdrop, ASB has brought forward its rate call, projecting a steady series of 25‑basis‑point OCR hikes from July and a 3.25% peak by year‑end, while not ruling out a May move. The bank argues that “avoiding a run of persistently high inflation suggests the need for more pre‑emptive monetary policy settings.” Earlier, more gradual moves now are framed as a way to avoid even tighter policy later, which ASB warns could increase the longer‑term economic toll on the New Zealand economy.
Stay informed with the latest housing market trends and mortgage insights — subscribe to our free daily newsletter.
