Higher fuel, food and power costs threaten RBNZ rate-cut hopes
New inflation analysis from Westpac and ASB suggests New Zealand borrowers face a tougher backdrop over the next 18 months, with higher fuel, food, and power costs likely to push consumer prices back above the Reserve Bank’s target band.
For mortgage advisers, that raises the risk of higher‑for‑longer mortgage rates, tighter borrowing capacity, and more pressure on first-home buyers and leveraged property investors.
Westpac senior economist Satish Ranchhod (pictured left) says February’s selected price data were broadly in line with forecasts, but the outlook has deteriorated sharply since the Middle East conflict pushed global oil prices higher. Westpac now expects annual inflation to rise to around 3.2% by mid‑2026, easing only gradually to 2.8% by year‑end – well above its previous 2.3% forecast.
ASB’s Mark Smith (pictured right) is even more cautious, warning “the outlook is incredibly uncertain, but the risk profile is tilted towards a greater skew of downward risks for NZ economic activity and employment but with an upward skew of risks to NZ inflation.”
Petrol, power, and food drive renewed inflation pressure
Both banks highlight energy costs as a key risk. Westpac notes the nationwide average price for 91 unleaded has already climbed above $3 per litre, with diesel jumping even more. ASB, meanwhile, expects retail petrol prices to push towards $3.50 per litre by mid‑2026, which will quickly feed into transport costs and wider CPI readings.
ASB also points to “chunky increases” for accommodation, electricity, and domestic airfares, with household electricity and gas prices up double digits over the past year. Food price inflation has re‑accelerated to around 4.5%, adding to the squeeze on household budgets already hit by post‑COVID cost rises.
One offsetting factor for borrowers is softer rent inflation. Both banks report a rare 0.1% monthly fall in nationwide rents, with annual rental inflation running near record lows amid weak population growth and a becalmed housing market.
Rate path uncertain but risks tilt higher
Despite the inflation push, Westpac still expects the Reserve Bank to keep the official cash rate on hold until December, arguing that hiking earlier “could compound the related downturn in activity” at a time of above‑normal unemployment.
ASB also sees the OCR on hold at 2.25% for much of this year but cautions “the risks are tilted towards an earlier start to OCR hikes,” particularly if higher energy‑driven inflation seeps into wage and price‑setting behaviour.
Read the ASB and Westpac analysis for more insights.
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