Annual inflation is projected to soften slightly in the September quarter but it\u2019s no cause for celebration, with bank economists raising concerns for the December quarter and beyond as fuel prices continue to rise and a weak New Zealand dollar adds to inflation pressures.<\/p>\n
As of the June quarter, annual inflation was at 4.1%<\/a> – \u00a0the highest annual inflation rate NZ has seen since hitting 4.7% in December 2023.<\/p>\n Next Thursday, Statistics New Zealand will be releasing its Consumer Price Index (CPI) figures – this is NZ’s official measure of inflation – for the September quarter. This CPI release is six days before the next Reserve Bank\u2019s Official Cash Rate (OCR) review on October 28.<\/p>\n In the lead up to next week’s CPI release, BNZ is projecting 3.9% CPI for the September quarter, while ANZ has gone for 3.8%. Westpac is projecting 3.7% while Kiwibank is picking 4.0%. ASB was projecting 3.8% (but this has not yet been finalised as of Friday).<\/p>\n On Friday, there was another nudge towards a potential OCR hike this month following the release of Statistics NZ\u2019s Selected Price Indexes (SPI)<\/a> which showed fuel prices rising.\u00a0<\/p>\n “Supply disruptions that began in late February 2026 contributed to higher fuel prices in March and April,” Stats NZ’s prices and deflators spokesperson Nicola Growden said.<\/p>\n \u201cPetrol and diesel prices then declined through to July, before increasing again in August and September. Although prices in September were above March levels, they were still below the peak recorded in April.\u201d<\/p>\n Increases in fuel prices for most of this year have been driven by conflict in the Middle East, which has impacted fuel supply and caused major supply disruption in the global oil market.<\/p>\n Meanwhile the New Zealand dollar has been falling<\/a>.<\/p>\n In its September Monetary Policy Statement (MPS), the Reserve Bank (RBNZ) lowered its annual CPI expectations for both the September and December quarters to 3.9%, down from earlier projections of 4.3% and 4.1% in its May MPS.\u00a0<\/p>\n The RBNZ is tasked with maintaining inflation between 1% and 3% based on the CPI, specifically targeting 2%. The OCR is its main tool for doing this.\u00a0<\/p>\n The RBNZ has previously hinted strongly at a possible pause<\/a> at the next OCR review following a hike in September to 2.75%<\/a> from 2.50%. But following the latest gross domestic product (GDP) figures in September, some economists suggested stronger-than-expected GDP data could nudge the central bank towards an increase in October<\/a>.\u00a0<\/p>\n \u2018We hoped that June would see the peak \u2026 that is no longer likely\u2019<\/p>\n ANZ economists, in their weekly data wrap, said September\u2019s SPI was slightly firmer than they expected, with a sharp increase in accommodation prices the largest surprise versus their expectation.<\/p>\n \u201cThe rest of the basket was close to our expectation: airfares rebounded, fuel prices lifted, and food prices were flat. Rents were a smidgen stronger than expected at 0.1% month on month. Overall, the miss was large enough to push our third quarter CPI forecast slightly higher.\u201d<\/p>\n BNZ senior economist Doug Steel also noted that the September SPI figures were generally higher than they had pencilled in.<\/p>\n \u201cMost parts weren\u2019t much higher than expected but, disturbingly from an inflation risk perspective, bigger increases were widespread. This accumulated to a meaningful upside surprise.\u201d<\/p>\n Kiwibank economist Alexandra Turcu said: \u201cWe started the third quarter of 2026 with hope that the conflict in the Middle East was easing, and petrol prices were going in the right direction. Alas, that didn\u2019t last.\u201d<\/p>\n \u201cAt the end of September, oil prices had spiked once again, taking petrol prices and all other oil-derived products, along with it. Households have been stunned once again.\u201d<\/p>\n With Kiwibank projecting a 4.0% CPI for the September quarter, Turcu said the silver lining was that most inflation was coming from offshore, and out of the RBNZ\u2019s control and\/or influence.<\/p>\n \u201cKiwi households were no better off in the September quarter than in the June quarter. Therefore, the petrol pump is pushing down on their capacity to absorb higher prices from other directions.\u201d<\/p>\n \u201cWe hoped that June would see the peak in the conflict and therefore a peak in prices. That is no longer likely,” she said.<\/p>\n The SPI for July, August and September had shown some \u201cmoderation\u201d and \u201ccompared to the June quarter, fuel prices actually eased in the September quarter, and food and housing rents were subdued\u201d, Turcu said.<\/p>\n \u201cAs the SPI makes up over half of the consumer price index, used to measure inflation, this gives us hope. This adds some down-side risk to our forecast, here\u2019s hoping for a lower inflation print than we\u2019re predicting.\u201d<\/p>\n Could September’s CPI be a ‘head fake lower?’\u00a0<\/p>\n Turcu said maybe a 3.8% CPI figure was in the realm of possibility and if this turned out to be the case, Kiwibank economists would be the first to celebrate being wrong.<\/p>\n \u201cAnd just when you thought this was good news \u2026 we\u2019ll then have to look to the December quarter, in which we\u2019ll have record high petrol prices to contend with. But alas, we have to take it one quarter at a time.\u201d<\/p>\n BNZ’s Steel said: “We always thought that third quarter inflation was not going to be far from the RBNZ\u2019s September MPS projection. That remains the case. Indeed, we now see it matching the Bank\u2019s forecast.”<\/p>\n “Annual inflation of 3.9% in the third quarter, would be an easing from the second quarter\u2019s 4.1%. This looks like a head fake lower.”<\/p>\n Steel said their bigger concern has been, and remained, the future – “what happens in the fourth quarter and beyond as fuel prices continue to ramp higher and a weak currency adds to inflation pressures.”<\/p>\n Concerns for December CPI quarter and beyond<\/p>\n \u201cToday\u2019s data add to these concerns as they set a higher starting point heading into the final quarter. Fourth quarter annual inflation is shaping up to be significantly higher than the RBNZ\u2019s 3.9% projection in its September MPS,” Steel said.<\/p>\n \u201cThe [Reserve] Bank has previously acknowledged some upside risk to near term inflation \u2026 The upside risk is looking punchier by the day.\u201d<\/p>\n Steel said before Friday\u2019s SPI release, they saw an upside risk to its December annual inflation projection of 4.3%.<\/p>\n \u201cRecent fuel price increases put this at risk of lifting to around 4.5%. Today\u2019s data raises the prospect of a number even north of that.<\/p>\n \u201cWe will look through the details of today\u2019s data before finalising our fourth quarter CPI estimate. But suffice to say that our 4.3% forecast is living on borrowed time.\u201d<\/p>\n Steel said next week’s CPI data feels a little dated. “A remarkable statement given that it is released only 22 days after the reference period. A sign of how quickly conditions are changing.”<\/p>\n Westpac NZ senior economist Satish Ranchhod said while annual inflation was expected to soften in the September quarter, this was likely to be a \u201ctemporary reprieve\u201d.<\/p>\n \u201cWith a sharp rise in fuel costs over the past few weeks, inflation is set to reaccelerate back over 4% before the end of this year, and it\u2019s set to remain above the RBNZ\u2019s forecast for most of next year.\u201d<\/p>\n