Economists see higher inflation but weaker growth as conflict drags on
New Zealand’s mortgage market has been hit with a fresh dose of uncertainty as the escalating conflict in the Middle East pushes global energy prices sharply higher.
For mortgage advisers and their clients, the latest shock raises the risk of a near‑term lift in inflation even as the growth outlook softens – a difficult mix for the Reserve Bank (RBNZ) to navigate when setting the path for mortgage rates.
Brent crude has jumped to around US$85 a barrel, while West Texas crude is now above US$90, with some contracts up more than a third from pre‑war levels.
Westpac senior economist Darren Gibbs (pictured upper left) notes that “at the time of writing, Brent crude has increased by $13/bbl to $85/bbl,” on top of earlier gains as markets anticipated conflict. Refining margins have widened, meaning the impact at the pump could be even larger than the move in crude alone.
ASB senior economist Kim Mundy (pictured upper right) said disruptions to oil, gas, and shipping mean “a lift in near-term global and kiwi inflation is all but a done deal,” even as downside risks to growth accumulate.
Kiwibank economists Jarrod Kerr and Sabrina Delgado (pictured lower left to right) echoed that view, arguing that disruptions to oil, gas, and shipping will push near‑term inflation higher, but warning that “it’s the damage to demand that is likely to dominate.”
Oil shock stokes inflation but squeezes households
For households, Kerr and Delgado warn that dearer petrol “acts like a tax on household consumption,” further squeezing disposable incomes at a time when many borrowers are already grappling with elevated mortgage rates and higher utilities.
Westpac estimates a US$10 rise in oil prices adds roughly 11 cents a litre to New Zealand petrol prices and around 0.1 to 0.2 percentage points to CPI. Given the surge in refining margins, Gibbs says current moves could see 91 octane rising to about $2.85 per litre, which if sustained would “directly add around 0.5ppts to annual inflation this year.”
Higher fuel and freight costs will filter through to food, transport and manufacturing, but economists stress that weak domestic demand may limit firms’ ability to fully pass on higher costs.
RBNZ caught between inflation and growth risks
Despite the inflation spike, analysts doubt RBNZ will rush to hike the official cash rate.
Gibbs argues that with spare capacity in the economy, “it would be folly to entirely rule out scenarios that could lead to further policy easing” if global growth is hit hard and New Zealand’s recovery falters. In the near term, he expects the central bank to become “even more wedded to the ‘on hold’ stance” signalled at its last meeting.
Kiwibank’s team also sees little case for tightening into a slowing global backdrop, saying “the idea of rate hikes anytime soon looks more premature now than before the war.” Instead, central banks “may well have to tolerate higher inflation in the short run to avoid tightening into a slowing global economy.”
For more insights, read the ASB, Kiwibank, and Westpac reports.
Stay informed with the latest housing market trends and mortgage insights — subscribe to our free daily newsletter.
