Banks see higher inflation, weaker growth, and a longer grind for borrowers
New Zealand households and mortgage borrowers face a tougher mix of higher living costs and softer growth as the Middle East conflict drives a sharp rise in oil prices and inflation, according to new analysis from Westpac, Kiwibank, and BNZ.
Westpac senior economist Satish Ranchhod says the conflict has already pushed nationwide prices for 91 unleaded petrol up an average of 53 cents per litre, a 22% jump on pre‑war levels, with diesel increasing even more.
Westpac now expects annual inflation to rise to around 3.2% by mid‑2026 before easing only modestly to 2.8% in the December quarter – well above its previous 2.3% forecast.
Higher fuel costs, weaker momentum
Ranchhod warns those fuel and transport cost increases will add to pressure on household budgets and operating costs for businesses, with airlines already announcing fuel‑related fare rises. Westpac has cut its 2026 GDP growth forecast from 3.3% to 2.8% and now expects unemployment to fall more slowly.
Kiwibank chief economist Jarrod Kerr and economist Sabrina Delgado say “higher oil prices act like a tax on consumption” and will hit both Kiwi exporters and domestic demand. They argue New Zealand is particularly vulnerable because the recovery is still in its early stages and recent growth has been heavily reliant on trade and tourism.
BNZ head of research Stephen Toplis also highlights the risk to fuel supply and freight, noting New Zealand’s dependence on refined product from Asia and the potential for shipping disruption to squeeze exporters and importers alike.
RBNZ caught between inflation and demand shock
Despite the higher inflation track, Westpac expects the RBNZ to keep the OCR on hold until December. Ranchhod argues that hiking sooner “could compound the related downturn in activity” and would not reverse the oil‑driven price spike already in train.
BNZ sees “a significant adjustment process is under way” and says the inflationary implications tilt the balance of risk towards tighter monetary policy than previously thought, particularly if inflation expectations become unanchored.
Kiwibank similarly flags the risk that global central bank hikes could add pressure on the RBNZ to follow to support the New Zealand dollar.
More insights can be found on the BNZ, Westpac, and Kiwibank reports.
Stay informed with the latest housing market trends and mortgage insights — subscribe to our free daily newsletter.
