“Higher electricity prices accounted for more than a tenth of the 3.1% annual increase,” prices and deflators spokeswoman Nicola Growden said.
“This was the third quarter in a row that electricity was the largest upwards contributor to the annual inflation rate.”
Other notable contributors were local authority rates and payments which were up 8.8%, meat and poultry (up 8.6%), rent (up 1.2%) and petrol (up 1.1%).
Inflation for the March quarter was 0.9% up from 0.6% in the December quarter.
Higher petrol prices were the largest contributor to quarterly inflation – up 3.5%.
While petrol prices were down in January and February, they rose in March after the start of the Middle East conflict effectively closed the Strait of Hormuz.
“Petrol is the third-largest expense item for New Zealand households after rent and construction,” Growden said.
It accounts for 3.5% of typical household spending.
A rise in pharmaceutical prices also drove inflation with prices up 17.7% on the back of prescription charge increases.
Combined petrol and pharmaceutical products accounted for more than a quarter of the 0.9% increase.
Confectionery, nuts, fruit and electricity also contributed to the inflation rise in the quarter.
But international air transport was down 7%.
“Airfares to Europe, Australia, and the Pacific Islands drove the fall in international airfare prices in the March 2026 quarter,” Growden said.
Economists had expected the annual rate to land between 2.8% and 3.1%, effectively marking a low point before the oil shock fully took effect.
From here, many bank economists are picking the inflation rate to head to around 4%.
“This quarter’s result was really just the curtain raiser,” Westpac senior economist Satish Ranchhod said.
“Both we and the RBNZ now expect inflation will rise to over 4% in the June quarter.”
Westpac assumed annual inflation would peak at 4.3% in the June quarter, before dropping back to 3.9% by the end of this year.
“Today’s result suggests upside risk to those forecasts,” Ranchhod said.
The middle part of the year would see the full brunt of the recent rise in oil prices, as well as related increases in transport and other costs, he said.
While the “cosmetics” didn’t look great, core inflation was largely contained, ANZ senior economist Miles Workman said.
Inflation excluding food and energy accelerated 0.1 percentage point to 2.6%.
“But that’s about where the ‘hawkish’ take on these data stops,” he said.
“Other measures of core inflation fell in the quarter.”
Tradeable inflation (largely determined by global factors, including movements in the NZD) slowed just 0.1 points to 2.5% for the year, stronger than ANZ’s expectation of 2.2%, he said.
Non-tradeable inflation (driven largely by domestic factors) was unchanged at 3.5% annually, slightly above ANZ and the RBNZ’s February MPS forecast of 3.4%.
Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.
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