Airfares, fuel, and utilities blamed for inflation flare‑up
Both Westpac and ASB see Q4 CPI coming in above the RBNZ’s November forecast, driven by seasonal spikes in airfares, higher fuel, and energy costs, and firmer accommodation prices, even as rents and construction costs stay subdued.
Westpac senior economist Satish Ranchhod (pictured left) expects the December quarter inflation report to show that “consumer prices rose 0.5% over the past three months. That would leave the annual inflation rate unchanged at 3.0%.” That compares with the RBNZ’s November projection of just +0.2% q/q and 2.7% annual inflation.
Ranchhod notes that Stats NZ’s monthly price updates “have been firmer than we had expected, particularly in the case of volatile categories like fuel and holiday travel and accommodation costs.” As a result, Westpac has revised its Q4 CPI forecast up from 0.3% to 0.5%.
ASB’s Mark Smith (pictured right), using the Selected Price Indexes as a lead indicator, says December’s data “points to the clear risk of Q4 annual CPI inflation coming in stronger than the November MPS projections (2.7% y/y). Our current CPI add up suggests that annual CPI inflation ended 2025 at 3.1% (from 3.0% in Q3).”
Airfares, fuel, and utilities push prices higher
Both banks highlight a similar mix of near‑term price pressures.
On Westpac’s figures, petrol prices were up 2.5% over the quarter, with other fuels up 4%. December also brought seasonal increases in international airfares, “up 7%”, as well as holiday accommodation and other recreational services.
ASB’s SPI breakdown shows just how sharp some of those moves were. Total airfares jumped 28.6% in December and 6.3% over the quarter, with international tickets up 33% month‑on‑month and 7.2% in Q4, and domestic fares rising 15.8% m/m and 3.7% in the quarter. Household electricity and gas prices “soared 1.5% in December (up 1.8% in Q4, up 13.0% y/y)”, with retail electricity up 12.2% over the year and gas prices up 17.5%.
Accommodation prices rose 0.7% in December and 3.6% over Q4, with domestic accommodation up 4.9% in the month and year. Together, these categories are expected to lift both tradables and non‑tradables inflation above what RBNZ was assuming late last year.
Rents, construction, and core inflation stay subdued
At the same time, the underlying inflation picture is steadily easing.
Westpac points out that “most measures of core inflation… have drifted back towards or inside RBNZ’s 1% to 3% target band over the past year”, and expects inflation excluding food, energy, and fuel to drop from 2.5% to 2.4% in the year to December.
A key driver has been “softness in consumer spending” and “weakness in housing costs – rents and the cost of purchasing a newly built home.”
Stats NZ’s monthly data suggest rental growth was “very subdued through the December quarter,” with a quarterly rise of just 0.1%, which Ranchhod says would be “the smallest December quarter increase since 2000.”
Westpac also expects only a 0.2% rise in the cost of building a new home as last year’s downturn in construction and increased competitive pressures keep a lid on prices.
ASB’s SPI data tell the same story on housing: rents rose 0.1% in December and Q4, with annual rent inflation “ticking down to 1.3%, the lowest figure in nearly 15 years.”
What it means for RBNZ
Westpac expects domestically oriented non‑tradables prices to rise 0.6% in Q4, taking annual non‑tradables inflation down to 3.4%, the lowest since 2021, while tradables are seen up 0.5% in the quarter and 2.4% over the year.
That combination would leave headline inflation above the RBNZ’s November track and, in Ranchhod’s view, “reinforce our expectation that the RBNZ’s easing cycle has come to a close.”
ASB also expects the RBNZ to stay patient, saying “we don’t envisage the RBNZ will be in a rush to change the 2.25% OCR,” but warns that if monthly price data remain firm there is “a risk that annual CPI inflation will remain closer to 3% than the circa 2% expectation by the RBNZ.”
The bank has pencilled in 50bps of OCR tightening from early 2027 and cautions that the RBNZ “may step in if the NZ economy heats up too quickly and inflation remains stuck around 3%.”
For more insights, read the full Westpac and ASB reports.
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