Oil shock to keep NZ inflation near 3%, says Westpac

Higher oil prices tied to conflict in the Middle East are set to keep New Zealand inflation near the top of the Reserve Bank’s target band for longer, according to Westpac.

Economists across the major banks warn the latest energy shock will push near‑term global and Kiwi inflation higher even as growth risks build, creating a difficult mix for RBNZ to manage.

Westpac senior economist Satish Ranchhod (pictured) has revised up the bank’s inflation track for 2026, now expecting consumer prices to sit close to 3% for much of the year before easing more clearly in 2027.

“We now expect inflation will remain close to the top of the RBNZ’s target band for most of this year,” Ranchhod said, with forecasts of around 2.9% in the June and September quarters and 2.6% by year‑end.

Oil and petrol costs drive near‑term pain

The trigger is a sharp spike in global energy markets. Dubai crude has jumped to more than US$105 a barrel, about 56% above pre‑conflict levels, while refining margins have also widened.

That combination has pushed the price of Singapore refined product sharply higher, flowing through quickly to New Zealand petrol prices.

Since Friday, the average price of 91 unleaded has climbed 14 cents to $2.64 a litre, with Westpac projecting a move towards $2.90 a litre if current oil dynamics persist. That would add roughly $30 a month to the average household fuel bill, before factoring in “indirect” effects such as higher transport, freight, and operating costs for businesses.

RBNZ still tipped to stay on hold

Despite the stronger inflation outlook, Ranchhod does not expect the Reserve Bank to bring forward official cash rate hikes.

“Even with a stronger near-term inflation outlook, the RBNZ is not likely to hike rates sooner than previously anticipated,” he said, reiterating Westpac’s view that the next move is most likely in December.

Other forecasters share that view, arguing the central bank may have to tolerate temporarily higher inflation rather than risk tightening into a slowing global backdrop, with some even flagging that further policy easing cannot be ruled out if growth weakens materially.

Higher interest rates now would not prevent the current oil‑related spike in inflation but would risk deepening any slowdown in activity at a time when unemployment is already elevated.

Read the full Westpac report here.

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