Inflation set to re-accelerate
Despite the softer growth pulse, both BNZ and Westpac see inflation as uncomfortably high and likely to rise further in the near term. Annual CPI was 3.1% in the March quarter, but fuel, transport, and administered costs are moving sharply higher following the latest oil shock.
Jones notes that quarterly inflation was “probably not far different from aggregate wage growth”, implying flat or negative real wages and shrinking household purchasing power.
Westpac senior economist Satish Ranchhod (pictured right) expects headline inflation to push up towards 4.5% in mid‑2026, with core measures easing back only gradually over the following years. Ranchhod says the Reserve Bank faces “a particularly challenging balancing act”: it cannot reverse higher oil prices, but it also “can’t ignore the risk that the current oil-related rise in operating costs evolves into a more widespread and protracted lift in inflation”.
OCR hike timing uncertain, but mortgage rates set to stay higher
Financial markets now imply the first official cash rate increase as early as July, with several more moves over the following year. BNZ, by contrast, still sees September as the most likely starting point, while Westpac expects the OCR to rise back towards neutral over 2027.
Either way, the shared message is that mortgage rates are unlikely to fall meaningfully and may grind higher again if wholesale funding costs rise. BNZ estimates the average mortgage rate actually paid has dropped to around the mid‑4% range as earlier cuts flowed through, but expects that to flatten before edging up later in 2026.