When that flow is threatened, prices move quickly.
The impact will feed directly into local inflation, reversing some of our recent progress and reminding households that global events can still hit close to home.
At the beginning of the week, wholesale interest rates jumped to their highest since July 2024, and markets priced in three rises in the Official Cash Rate (OCR) this year.
However, the RBNZ has reminded us that context matters in these situations.
This is a classic supply shock, one that pushes inflation higher but does the opposite to economic growth.
Higher fuel costs are rippling through the economy, lifting transport costs, airfares and food prices.
This is putting the squeeze on household budgets and businesses’ profit margins.
For a small, open economy like ours, that combination is particularly challenging.
We export goods to a world that is suddenly looking weaker, while we import goods that have immediately become more expensive.
Economic activity slows while prices rise. “Stagflation-lite”, you might say.
That creates a balancing act for central banks, but the calm tone from the RBNZ is because not all inflation is created equal.
A temporary spike in petrol prices is very different from broad-based, persistent inflation driven by rising wages and strong demand.
Monetary policy can’t do much about the former, but it must act decisively if the latter becomes entrenched.
That means the RBNZ is likely to “look through” an initial jump in inflation, rather than hike the OCR prematurely.
Keep in mind the RBNZ’s mandate, which is to keep inflation within its 1-3% target over the medium term.
That’s generally thought of as one to two years ahead. So, even if the inflation rate spikes towards 4%, the RBNZ needs to focus on where it will be in late 2027.
Cranking up the OCR would do little to bring petrol prices down, but it would further weaken an economy that is still in the early stages of recovery.
The backdrop today is quite different from the last time oil prices surged above US$100.
That was in 2022, when demand was strong, savings were high and businesses had more pricing power.
Things are softer now, with households already more stretched, balance sheets tighter, and the economy operating below capacity.
That lowers the risk of a temporary spike in costs turning into something more persistent.
What the RBNZ will be watching closely from here is behaviour.
If businesses begin lifting prices aggressively, or workers demand higher wages to compensate for higher costs, inflation expectations could rise.
That’s when a temporary shock becomes a lasting problem, to which the RBNZ would have to respond.
I’ll be watching tomorrow’s ANZ Business Outlook survey for evidence of how businesses are reacting, while the next household expectations survey in May will tell us what consumers are thinking.
For now, the early signs suggest the RBNZ can take its time.
Sharemarkets have weakened, prospective home buyers have pulled back, and uncertainty has risen.
All of that tends to dampen activity, rather than fuel it.
The combination of higher inflation and weaker growth isn’t what we need right now.
However, the RBNZ is taking a measured approach to this, and so should we.
While inflation is clearly set to spike, the bigger question is how long that lasts and how people respond to it.
Mark Lister is Investment Director at Craigs Investment Partners. The information in this article is provided for information only, is intended to be general in nature, and does not take into account your financial situation, objectives, goals, or risk tolerance. Before making any investment decision, Craigs Investment Partners recommends you contact an investment adviser.