Oil shock lifts costs and reshapes mortgage strategies for Kiwi borrowers
Soaring fuel prices are set to squeeze New Zealand household budgets and complicate mortgage decisions for first-home buyers and property investors, ASB’s latest Economic Weekly warns.
The bank estimates the current oil shock will add around $55 a week to average household living costs over 2026, a roughly 50% increase on what it was forecasting at the start of the year, with most of that increase fuel‑related and higher transport costs expected to spill over into other essentials.
ASB expects high energy prices to last for months, not weeks, keeping inflation elevated and weighing on growth via weaker demand.
Wesley Tanuvasa, ASB economist, notes that “high fuel prices continue to sting NZ consumers”, and that its new oil‑shock forecasts point to higher inflation and lower growth over 2026, making the Reserve Bank’s (RBNZ) job more complicated.
The bank’s modelling indicates retail spending will weaken through most of 2026 as higher energy costs and tighter financial conditions erode households’ disposable income, with consumers retreating from durables and discretionary items back towards essentials such as fuel and groceries.
Other bank economists are drawing similar conclusions, with Kiwibank economists highlighting that “The Kiwi economy runs on diesel” and warn that threats to supply are already lifting prices and forcing an urgent focus on securing fuel and limiting demand.
RBNZ cautious as inflation stays elevated
ASB expects RBNZ to leave the official cash rate at 2.25% at this week’s review, with markets already paring back expectations for near‑term hikes as growth concerns build. While wholesale interest rates have eased from late‑March peaks, ASB still sees a prolonged period of above‑target inflation, limiting scope for early rate cuts.
Kiwibank notes that Governor Anna Breman has been sending “strong signals that the RBNZ will not be rushed into reacting to fuel costs and the (temporary?) spike in inflation.” That stance suggests a period of relative stability in mortgage rates in the near term, even as borrowers remain exposed to renewed market volatility if the conflict in the Middle East escalates.
Westpac, meanwhile, now expects New Zealand GDP to grow just 1.9% in the year to December, well below the RBNZ’s earlier 2.8% forecast, and is forecasting inflation to peak around 4.1% before easing only to 3.8% by year‑end. That implies a longer spell of above‑target inflation and keeps rate‑cut hopes firmly in check.
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