Annual inflation, as measured by Statistics NZ’s consumers price index (CPI), hit 3.1% in the December quarter, a touch over the top of the Reserve Bank’s 1% to 3% inflation target range.

“While the annual inflation rate has slowed considerably since its most recent peak of 7.3% in the June 2022 quarter, it has increased each quarter since the December 2024 quarter, when it was 2.2%,” Statistics NZ prices and deflators spokesperson Nicola Growden says.

The 12 months to the December 2025 quarter saw a larger proportion of smaller annual price increases within the CPI basket and fewer annual price decreases, compared with the previous 12 months.

“More than 80% of the CPI basket increased in price over the past year – the highest proportion of increases recorded in 18 months,” Growden said.

“Over half of the CPI basket increased in price by 3.0% or less.”

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Like in the September quarter, when annual inflation was 3%, the increase in the latest annual inflation figure rate was driven by electricity, rent and local government rates and payments.

Electricity was up 12.2% – contributing 10.3% to the latest annual inflation figure. Rent was up 1.9% and contributed 6.9% to the latest annual inflation figure while local authority rates and payments went up 8.8% – contributing 8.7%.

Other contributors to the annual CPI increase were: meat and poultry which went up 8.2%, overseas accommodation increased 9.1% milk, cheese and eggs increased 9.8% telecommunication services went up 7%

Pharmaceutical products, audio-visual equipment, and games, toys and hobbies all fell in price over the year.

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CPI % year on year
Tradable inflation % pa
Non-tradable inflation % pa
Food prices % pa

Non-tradeable inflation up 3.5%

The latest CPI figures show annual tradeable (imported) inflation went up 2.6%. Higher prices were recorded for meat and poultry which jumped 12.1% and overseas accommodation went up 9%.

These were partly offset by audio-visual equipment which fell 18.6% and games, toys and hobbies went down 5.8%.

Non-tradeable annual inflation (goods and services that don’t face overseas competition but can be influenced by foreign competition) increased 3.5% with higher prices recorded for electricity, which was up 12.2%, and local authority rates and payments jumping up 8.8%.

Lower prices were recorded for pharmaceutical products, which dropped 9.4% and domestic air transport which decreased 7.7%.

Health insurance surges

Insurance saw an overall annual increase of 2.4% with health insurance jumping 20.3%.

Dwelling insurance saw a jump of 2.0% while contents insurance jumped 5.2% and vehicle insurance saw a 3.2% decrease.

Milk, cheese and eggs saw a 9.8% annual increase. Coffee, tea and other hot drinks saw a 12.3% annual increase.

The purchase of new housing saw a 1.2% annual change.

Under the education group category, tertiary and other post-school education increased 22.6%.

Property rates and related services saw an increase of 8.2% while central and local government charges jumped 8.7%.

Tops RBNZ expectations

The Reserve Bank (RBNZ) had expected inflation for the December quarter to be 2.7% – but this was projected back in November before more recent data was available.

Before the CPI release on Friday, Statistics New Zealand shared the latest Selected Price Index (SPI) figures a week earlier – this features about 47% of the contributors to the quarterly CPI – the country’s official measure of consumer inflation.

The SPI results showed higher than expected inflationary pressures, leading to major bank economists last week tweaking their projections for the CPI – most settling on 3.0% for Friday’s CPI figure and one ASB economist picking 3.1%.

Quarterly increase

The CPI increased 0.6% in the December quarter, compared with the September 2025 quarter which had a 1% increase.

Higher prices for international air transport was the largest contributor to the quarterly inflation rate, which was up 7.2%.

The increase in international air transport prices contributed one-fifth of the 0.6% quarterly CPI increase.

Growden said prices for international air transport usually increase during the summer holidays in New Zealand.

Airfares to Asia, Australia and Africa was the driver of the increase in international airfare prices in the December quarter.

Growden said higher petrol prices also contributed to the quarterly CPI increase – making up almost 0.1% of the 0.6% quarterly inflation figure.

Petrol prices jumped to 2.5% and the average price for one litre of 91 octane fuel was $2.61 in the December quarter – up from $2.54 in the September quarter.

Petrol makes up 3.5% of the CPI basket.

Lower prices were recorded for vegetables which decreased 16.5% and pharmaceutical products which went down 4.3%.

 

Official Cash Rate

The RBNZ is tasked with maintaining inflation between 1% and 3% and it specifically targets 2%.

Its next Official Cash Rate (OCR) decision will be on February 18 – this will be the first OCR review for Anna Breman, who started in the Reserve Bank Governor role in December.

In November, the RBNZ cut the OCR to 2.25% from 2.50%. At the time, the RBNZ said any future moves would depend on how the outlook for medium-term inflation and the economy evolve. It did not specifically say the next move would be down.

Following the OCR announcement in November, economists said the door for further easing was open but not as wide as expected – with many suspecting the central bank would now place the OCR on hold.

Financial markets are expecting the OCR to also be on hold in February, but market pricing has suggested the OCR may start to move up in the September quarter this year – with a 25 basis point rise in the OCR about 80% priced in by the start of September.

Late last year, RBNZ Assistant Governor Karen Silk told interest.co.nz that the Monetary Policy Committee would be keeping an eye on price setting behaviour and world dynamics – both things could influence how the OCR moves, whether that’s up or down.