Stats NZ on Friday morning said the consumer price index (CPI) increased 3.1% in the 12 months to December 2025, the fourth consecutive increase in the annual inflation rate.
That is outside the RBNZ target band of 1-3%, but still well down on the most recent peak of 7.3%, recorded in June 2022.
The largest contributor to annual inflation was electricity, up 12.2%. Electricity prices have been trending upwards since 2021 but have spiked over the past year. Annual electricity increases are at their highest point since the late 1980s, Stats NZ said.
Non-tradeable inflation (which is mostly driven by domestic factors) stayed at 3.5%, having tracked down over the past three years, while tradeables (more affected by global factors) increased from 2.2% to 2.6%.
The headline 3.1% inflation figure is higher than the 2.7% forecast by the RBNZ in November and above the 3% expected by the market.
ANZ Bank changed its forecast after the data was announced. Photo / Mark Mitchell
After it was announced, ANZ said it would adjust its OCR forecast, with the bank now expecting the first hike to occur in December, having previously predicted the move would be in February next year.
In a research note, ANZ said headline inflation breaching the RBNZ’s target range would “not sit well” with the central bank’s Monetary Policy Committee.
“For the RBNZ, today’s data will make for uncomfortable reading, but indicators of spare capacity suggest there is still some, albeit diminishing, underlying disinflation in the pipeline that should help return headline inflation to within the 1-3% target band.
“That said, when combined with the recent sharp improvement in the activity data, today’s release tips the balance towards hikes this year being likelier than not.
“We are now forecasting the first 25bp hike in December, with two follow-up hikes at the February and April 2027 meetings taking the OCR back to an assumed neutral level of 3% as before.”
An update from economic consultancy firm Infometrics similarly said that the “continued acceleration” in inflation, despite spare capacity, would start “to raise concerns at the Reserve Bank”.
“Having headline inflation rising, and no further moderation in non-tradeables inflation, is a clear concern, particularly when partial economic indicators suggest strengthening economic growth for the end of 2025 and into 2026,” the update said.
“If inflation was accelerating when economic growth was low or negative, there is a significant likelihood that inflation could accelerate further as growth gains momentum.”
Informatics said it was holding to the view that the OCR would start to increase from November.
“However, strong growth and inflation numbers in the next few months, combined with a possible hawkish approach from the new Reserve Bank Governor, could force interest rate rises back on the table as soon as May.”
David Seymour said the inflation threat remained. Photo / Mark Mitchell
Seymour, the Act Party leader and Deputy Prime Minister, said today’s data is a “reminder that the inflation monster can rear its head again if we don’t restrain low-value government spending”.
He said “decent progress” had been made in addressing inflation, “but we need to go further”. Seymour said Act was the “only party that always advocates for a smaller, more efficient government to save taxpayers’ money”.
“When other parties roll out their election lolly scrambles, they threaten to throw fuel on the embers of inflation.”
Earlier this week, he spoke to the Herald about meeting Argentinian President Javier Milei during a South American sojourn over the summer. Milei rose to power campaigning on significant reductions in public spending and promoting free market reform.
“If you look at his programme,” Seymour said, “[he] halved the number of government departments, cut spending by 30%, balanced the budget for the first time in decades, and was handsomely rewarded at the midterms, so that was quite impressive and he’s also just having a lot of fun doing it.”
Peters, another senior Government member, said of today’s data, “it’s not good enough”.
“But you know we have to do far more about the power pricing, and across the country, the rating increases are damaging in the extreme.”
NZ First was hot last year on energy reforms, though a package of actions announced last year by the Government, intended to ensure energy security and address issues believed to be keeping prices high, was criticised as too tepid by some commentators.
When asked for her reaction to today’s data, Willis said inflation was being monitored closely, but it was a “lot lower than it was”.
“I have confidence in the Reserve Bank on its delivery of its mandate to keep inflation under 3% over the medium term,” she said.
“There is always some volatility in these quarter-to-quarter figures and the parts that make up for it. What we’ve seen since we were elected is that domestic tradeable and non-tradeable inflation has been tracking down.”
She said the Government was right to “resist the calls from some political parties to be spending a lot more money”.
“That would have put more pressure on inflation, and we could have seen this figure go even higher.”
Finance Minister Nicola Willis said it was the Reserve Bank’s job to keep inflation in the target range. Photo / Mark Mitchell
She also said the Government was trying to “address some of the drivers of inflation, including rates rises, and our work on rates capping will be very important”.
Willis repeatedly said it was the Reserve Bank that was responsible for keeping inflation within the target band.
“One of the first things our Government did was focus the Reserve Bank’s mandate onto that sole objective. That is their responsibility. I have confidence in the fact that they will deliver on that.”
She said potential interest rate hikes were a “matter for the Reserve Bank”.
“I have confidence in their ability to deliver on their mandate. Some of the factors in this inflation rise they may look through as temporary or transitory factors, but it is up to them ultimately to decide what’s needed to keep us on track on inflation.”
Though the minister also said, “what our Government has done very successfully is ensure that inflation has come back down from its highs, which has allowed multiple interest rate reductions”.
“That’s what’s going to help fuel our economic recovery. So we’re pleased to see that. We aways want to see that interest rates are lower than they might otherwise be, while inflation is steady. That is the Reserve Bank’s mandate, and I have confidence in their ability to do that.”
Labour leader Chris Hipkins cautioned against talk from the Government that the economy was improving, noting we had heard that before.
“A year ago, the Government started the year saying we’d turned the corner, the economy was recovering, and things got worse, the economy shrank. Every time this Government say everything’s about to get better, it gets worse.”
In his State of the Nation speech on Monday, National leader Christopher Luxon said a lot of progress had been made, highlighting inflation being down from over 7%, lower mortgage rates and improving business confidence.
But he also acknowledged the need to focus on “translating that optimism into real results for New Zealanders in 2026”.
Jamie Ensor is the NZ Herald’s Chief Political Reporter, based in the Press Gallery at Parliament. He was previously a TV reporter and digital producer in the Newshub Press Gallery office. He was a finalist in 2025 for Political Journalist of the Year at the Voyager Media Awards.