Oil surge lifts NZ inflation risks, clouds rate outlook again
The latest escalation in the Middle East is emerging as a fresh headwind for New Zealand’s recovery, with BNZ warning it could lift inflation and keep interest rate risks on the radar for longer.
BNZ chief economist Mike Jones (pictured) said the conflict is “a new source of uncertainty and risk for the global economy”, with energy prices already reacting sharply. Crude oil has retreated from early-week highs but remains more than 20% above February levels, while a key LNG benchmark is up around 50%.
Higher fuel costs, supply chain pressure and mixed data
Jones noted that local pump prices tend to track refined fuel costs in Asia, which are still signalling “upside risk on NZ retail petrol prices”. On top of the direct hit to households and transport-intensive businesses, BNZ sees scope for broader disruptions to trade and supply chains, including higher shipping and insurance costs and increased port congestion.
If these pressures intensify, input costs for New Zealand firms are likely to rise and the availability of some materials could tighten, working against the business investment BNZ had been expecting to support the recovery.
At the same time, domestic indicators paint a mixed picture: consumer confidence remains well below average even as retail sales volumes grow, suggesting households are reluctant shoppers still feeling cost-of-living strain.
Economists at other major banks warn that dearer petrol “acts like a tax on household consumption”, further squeezing disposable incomes at a time when many borrowers are already facing elevated mortgage rates.
BNZ lifts inflation forecasts but sees RBNZ on hold
BNZ has revised its inflation track higher, now expecting annual CPI to dip from 3.1% to 2.8% in the March quarter before climbing back towards the top of the Reserve Bank’s 1%–3% target band for the rest of 2026.
“We stress that these forecasts are contingent on a set of assumptions that are changing intraday!” Jones said.
Westpac’s latest projections are similar, with senior economist Satish Ranchhod now expecting inflation to remain close to the top of RBNZ’s target band for most of this year, at around 2.9% in the June and September quarters before easing towards 2.6% by year-end.
Even so, BNZ still expects RBNZ to wait before lifting the official cash rate, arguing that policymakers will want to balance “heightened inflation risks set against a potentially reduced growth impulse”.
Westpac also sees the central bank staying on hold in the near term, suggesting the next move is more likely later in the year as central banks weigh higher near-term inflation against the risk of tightening into a softer global backdrop.
Read the full BNZ analysis here for more information.
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