Annual inflation, as measured by the consumers price index (CPI), rose to 3.0% in the September quarter reaching the top of the Reserve Bank’s 1% to 3% inflation target range.
The RBNZ had expected inflation to reach 3.0%, but does expect it to decline again from here.
The increase in the latest annual inflation figure rate was driven by electricity, rent, local authority rates and payments. This latest annual inflation figure is a jump from the June quarter, when annual inflation was 2.7%.
This 3% annual inflation rate is the highest since the June 2024 quarter, which saw annual inflation reach 3.3%, Statistics New Zealand’s prices and deflators spokesperson Nicola Growden says.
The latest inflation figure, released on Monday, is unlikely to deter the Reserve Bank (RBNZ) as its Monetary Policy Committee previously noted inflation was projected to reach 3% in the September quarter.
The RBNZ is tasked with maintaining inflation between 1% and 3% and it specifically targets 2%. Its next Official Cash Rate decision will be in November. Earlier this month the RBNZ cut the OCR to 2.5% from 3.0% and, notwithstanding the inflation figure, there's universal expectation that the OCR will be cut to 2.25% in the review on November 26.
In notes written before Statistics New Zealand’s CPI release, economists also suggested the CPI inflation for the September quarter would reach 3% to 3.1% with ANZ economists saying the Monetary Policy Committee are unlikely to get too spooked by inflation breaching the target band “provided the core measures remain contained and non-tradeable inflation continues to slow”.
The latest CPI figures show annual tradeable (imported) inflation went up 2.2%. Higher prices were recorded for overseas accommodation prepaid in New Zealand which went up 9.6%, and meat and poultry which jumped 12.2%.
These were partly offset by telecommunication equipment which decreased 15.2% and petrol which was down 1.6%.
Non-tradeable annual inflation (goods and services that don’t face overseas competition but can be influenced by foreign competition) was at 3.5% (down from 3.7% in the June quarter) with higher prices recorded for electricity which was up 11.3% and local authority rates and payments – jumping 8.8%.
These were partly offset by pharmaceutical products, down 80.9% and real estate services which decreased by 2.4%.
Top three contributors to annual inflation
With electricity up 11.3% - it contributed 10.1% to the 3% annual CPI increase, while rent was up 2.6% (contributing 9.2%) and local authority rates and payments were up by 8.8% (contributing 9.2%).
The top three contributors make up 17% of the weight of the CPI basket.
“Annual electricity increases are at their highest since the late 1980s, when there were several major reforms in the electricity market,” Growden says.
“The 11.3% annual increase in electricity prices is the largest since the March 1989 quarter when they rose 12.8%.”
While rent was also a top three contributor – it went up by 2.6%. This is the smallest annual increase in over four years. The last time it was this low was in the June 2019 quarter when it was 2.5%.
Rent prices in Canterbury and the rest of the South Island had the largest annual increases – both jumping by 4.3% while Wellington had the smallest annual increase at 0.1%.
Local authority rates and payments are measured once a year in the September quarter.
Growden says the annual increase in rates in this quarter was lower than the 12.2% increase in the September 2024 quarter – but higher than the average increase of around 7.3% between 2018 and 2025.
Larger increases were reported in Napier, Hastings and New Plymouth and lower increases for Whanganui and Timaru.
Downward contributors to the CPI were pharmaceutical products which had decreased 10.6%, telecommunication equipment was down 15.2% and petrol was down 1.6%.
Growden says Statistics New Zealand measures the change of prescription charges in over year and this does start to decline over time.
Other areas
Insurance saw an overall annual increase of 4.1% with health insurance jumping 19.2%.
Dwelling insurance saw a jump of 5.6% while contents insurance jumped 9.3% and vehicle insurance saw a 0.8% decrease.
Milk, cheese and eggs saw a 10.9% annual increase.
The purchase of new housing saw a 0.8% annual change.
Quarterly rise
The CPI increased 1% in the September quarter, compared with the June 2025 quarter.
Local authority rates and payments was the largest contributor – making up 28% of the 1% quarterly rise.
Vegetables made up 15% of the quarterly 1% rise with Growden saying seasonal rises for tomatoes, cabbage, capsicums, lettuce and broccoli all contributed to the rise in vegetable prices.
28 Comments
The RBNZ has a single mandate, achieving and maintaining price stability.
Cutting interest rates as inflation breaks out to the top side is voodoo economics, the sort of thing you see in Zimababwe or Turkey.
Kiwi is going lower, a lot lower.
How, without spending constraints on local councils and insurance providers?
It's not all rates though is it.... Vegetables +12%, rents +2.6%, electricity 11 % (all annual).
Rates are rising due to incompetence and underinvestment in infrastructure. If council rates have been to low historically, that has meant monetary policy settings will have been too loose as well.
That is the reason there is a single mandate, so we don't set policy by picking and choosing what we want to include to achieve a desired policy setting. Once we abandon that, you may as well give up.
They are meant to achieve and maintain price stability over the medium to long term. They shouldn't make a knee jerk reaction to this. Although any thought of cuts at the next review would seem a bit odd.
Stagflation has arrived.
It was already here; it's just getting worse.
You had one job....
The RBNZ is expecting the NZ economy to be weak enough, going forward, to bring down inflation. That is not a good sign of what's ahead for us next year.
The only thing you can say with any confidence is going to go down is our standard of living. Weaker Kiwi is yet to feed through to CPI, tariffs, power.
Just because this is not demand-side inflation doesn't make it any less of a problem.
Recent years OCR settings have had zero impact on rates, insurance etc so there's zero chance that raising now will have any effect either.
We need to find another level to pull.
Rates cap.
Sure thing, grow the infrastructure deficit even more, the next generation will handle it.
Seriously though, I know the government was looking at sharing new build GST with the local council who facilitated the build, is that still in the pipeline? That could take the edge off rates but obviously at the expense of lower central tax take. Good for encouraging building needed houses though.
"...just for Wellington City.
- $593 million on social housing capital (most councils don’t do social housing)
- $510 million for a sludge minimisation facility at Moa Point
- $330 million on rebuilding the town hall so we have another music venue
- $325 million on social housing operational (most councils don’t do social housing)
- $240 million on Civic Square
- $236 million on food recycling (will cost $19,000 per tonne of greenhouse gas emissions reduction)
- $189 million on Te Matapihi library (the three existing CBD libraries are great)
- $180 million on the Takina convention centre (which somewhat is managing to lose money on every exhibition it hosts)
- $160 million on cycleways
- $139 million on removing cars and redeveloping the Golden Mile
- $55 million to upgrade destroy Thorndon Quay
- $42 million on renovating St James Theatre
- $32 million to Reading Cinemas (attempted but failed)
- $13 million on a carpark building
That is a staggering $3 billion, which equates to around $38,000 per household."
Do not believe the lies | Kiwiblog
$325 million on social housing operational - wow is that the annual loss, they cost more to run than they take in rent? Or is that delayed improvements that needed to be done?
Agree I would be pretty annoyed paying tax for social housing and then also paying rates for it too.
another level [lever] to pull
High interest rates ultimately add to inflation as businesses and councils have higher costs. Will the new governor be able to add anything
Lower interest rates can also lead to inflation if the NZ dollar falls and imports become more expensive.
Both are mainly one-off inflation hits. The RBNZ will be more worried about spiralling inflation (e.g. spiralling wage demands), that's when you get the Turkey situation.
That's a big assumption. Local councillors will be watching every penny with the economy under squeeze (they are elected after all), compared to when the OCR was 0.25% and everyone in the country was spending like a drunken sailor. Insurance you may be right.
Let's look on the bright side - inflation represents the rise in private sector prices needed to maintain and improve profits. Regardless of inflation the shareholders in many of these sectors are still going to be made to feel very special.
There is always two sides to the ledger - a dramatic rise in electricity prices for some is the guarantee of another record year in dividend payments to others.
The Gentailers did not have a great year - Meridian made a huge loss. The trouble is we had a dry year and low gas availability, so we didn't have enough supply. When you get to the point where power cos are paying industries to not use their product, that does not produce the windfall you seem to think it does.
No matter how big the loss - I can guarantee that shareholders will be protected. This is a sector that borrowed $3 billion dollars against its assets - not to build generation capacity - but to pay shareholders. It has paid out more than $12 billion dollars in dividends over the last 10 years. It is an absolute economic monster that is devouring it's own infants with complete and total awareness and complicity from the NZ media. No-one is calling them out.
What do you mean by 'the shareholders will be protected'? They are the owners of the company - the loss is theirs.
Last time I looked I think this year the big 4 spent about a billion on generation capacity, likely similar last year, will be more next year. It was lower before that because demand was flat and Tiwai Point was threatening to shut down.
But it won't be more than dividends and generation capacity has to be maintained at a level that supports a profitable price for electricity. Too much supply and the price of electricity drops below what delivers investor returns.
This is what happened in Spain when everyone put solar panels on their rooves - demand from the grid and it's generators collapsed. The price of electricity fell dramatically - great for consumers and businesses - terrible for investors and shareholders in the electrcity sector.
It was called a crisis - because electricity became cheap and abundant. (Thanks China.) In capitalism supply constraint and artificial scarcity are essential to profitable returns. I'm sure NZ won't make the same mistake as Spain - NZ shareholders are just too important.
"great for consumers and businesses" - not necessarily. There is a fixed cost to running and maintaining a lot of those assets, and without them we'd struggle to run off solar only (especially businesses). I'd say this could be a future problem for NZ too, but not just for shareholders.
If the government wanted to get inflation under control, the obvious solution would be to help out councils with their massive infrastructure costs. Instead the government are attacking and threating councils and taking away funding. If the councils spend money on things like events or cycleways its considered wastage, but when the government does it its an investment in the economy.
Most councils would have a big pipeline of work ready to start that can be employing people next year. The government are struggling to find anything they can start; most are big roading projects that aren't in the big cities which are the places struggling the most.
As Wayne Brown has alluded to, the government have 10s of billions to waste on a gold plated road only second harbour crossing that we don't really need, the council would actually spend that money much wiser.
So how do you describe a council "investment" in cycle lanes that result in businesses having to close due to reduction in customer parking?
You'd need to be more specific. In general I'd say road space is better used to move people than for parking.
There are plenty of streets that have no parking and lots of thriving businesses, but they are probably a different type of business.
Infrastructure investment can be difficult to measure in dollar terms. How much is it worth for our kids to be able to move around safely without adults driving them everywhere for example?
Non-tradeable annual inflation (goods and services that don’t face overseas competition but can be influenced by foreign competition) was at 3.5% (down from 3.7% in the June quarter) with higher prices recorded for electricity which was up 11.3% and local authority rates and payments – jumping 8.8%.
This is the important metric. While everyone is raving on about the largely irrelevant headline inflation, non tradable continues to fall and has done so since inflation peaked in 2023.
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