Annual inflation, as measured by Statistics NZ's consumers price index (CPI), hit 3.1% in the December quarter, a touch over the top of the Reserve Bank’s 1% to 3% inflation target range.
"While the annual inflation rate has slowed considerably since its most recent peak of 7.3% in the June 2022 quarter, it has increased each quarter since the December 2024 quarter, when it was 2.2%," Statistics NZ prices and deflators spokesperson Nicola Growden says.
The 12 months to the December 2025 quarter saw a larger proportion of smaller annual price increases within the CPI basket and fewer annual price decreases, compared with the previous 12 months.
“More than 80% of the CPI basket increased in price over the past year – the highest proportion of increases recorded in 18 months,” Growden said.
“Over half of the CPI basket increased in price by 3.0% or less.”
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Like in the September quarter, when annual inflation was 3%, the increase in the latest annual inflation figure rate was driven by electricity, rent and local government rates and payments.
Electricity was up 12.2% - contributing 10.3% to the latest annual inflation figure. Rent was up 1.9% and contributed 6.9% to the latest annual inflation figure while local authority rates and payments went up 8.8% - contributing 8.7%.
Other contributors to the annual CPI increase were: meat and poultry which went up 8.2%, overseas accommodation increased 9.1% milk, cheese and eggs increased 9.8% telecommunication services went up 7%
Pharmaceutical products, audio-visual equipment, and games, toys and hobbies all fell in price over the year.
Consumer prices index
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Non-tradeable inflation up 3.5%
The latest CPI figures show annual tradeable (imported) inflation went up 2.6%. Higher prices were recorded for meat and poultry which jumped 12.1% and overseas accommodation went up 9%.
These were partly offset by audio-visual equipment which fell 18.6% and games, toys and hobbies went down 5.8%.
Non-tradeable annual inflation (goods and services that don’t face overseas competition but can be influenced by foreign competition) increased 3.5% with higher prices recorded for electricity, which was up 12.2%, and local authority rates and payments jumping up 8.8%.
Lower prices were recorded for pharmaceutical products, which dropped 9.4% and domestic air transport which decreased 7.7%.
Health insurance surges
Insurance saw an overall annual increase of 2.4% with health insurance jumping 20.3%.
Dwelling insurance saw a jump of 2.0% while contents insurance jumped 5.2% and vehicle insurance saw a 3.2% decrease.
Milk, cheese and eggs saw a 9.8% annual increase. Coffee, tea and other hot drinks saw a 12.3% annual increase.
The purchase of new housing saw a 1.2% annual change.
Under the education group category, tertiary and other post-school education increased 22.6%.
Property rates and related services saw an increase of 8.2% while central and local government charges jumped 8.7%.
Tops RBNZ expectations
The Reserve Bank (RBNZ) had expected inflation for the December quarter to be 2.7% - but this was projected back in November before more recent data was available.
Before the CPI release on Friday, Statistics New Zealand shared the latest Selected Price Index (SPI) figures a week earlier - this features about 47% of the contributors to the quarterly CPI - the country’s official measure of consumer inflation.
The SPI results showed higher than expected inflationary pressures, leading to major bank economists last week tweaking their projections for the CPI - most settling on 3.0% for Friday’s CPI figure and one ASB economist picking 3.1%.
Quarterly increase
The CPI increased 0.6% in the December quarter, compared with the September 2025 quarter which had a 1% increase.
Higher prices for international air transport was the largest contributor to the quarterly inflation rate, which was up 7.2%.
The increase in international air transport prices contributed one-fifth of the 0.6% quarterly CPI increase.
Growden said prices for international air transport usually increase during the summer holidays in New Zealand.
Airfares to Asia, Australia and Africa was the driver of the increase in international airfare prices in the December quarter.
Growden said higher petrol prices also contributed to the quarterly CPI increase – making up almost 0.1% of the 0.6% quarterly inflation figure.
Petrol prices jumped to 2.5% and the average price for one litre of 91 octane fuel was $2.61 in the December quarter – up from $2.54 in the September quarter.
Petrol makes up 3.5% of the CPI basket.
Lower prices were recorded for vegetables which decreased 16.5% and pharmaceutical products which went down 4.3%.
Official Cash Rate
The RBNZ is tasked with maintaining inflation between 1% and 3% and it specifically targets 2%.
Its next Official Cash Rate (OCR) decision will be on February 18 - this will be the first OCR review for Anna Breman, who started in the Reserve Bank Governor role in December.
In November, the RBNZ cut the OCR to 2.25% from 2.50%. At the time, the RBNZ said any future moves would depend on how the outlook for medium-term inflation and the economy evolve. It did not specifically say the next move would be down.
Following the OCR announcement in November, economists said the door for further easing was open but not as wide as expected - with many suspecting the central bank would now place the OCR on hold.
Financial markets are expecting the OCR to also be on hold in February, but market pricing has suggested the OCR may start to move up in the September quarter this year - with a 25 basis point rise in the OCR about 80% priced in by the start of September.
Late last year, RBNZ Assistant Governor Karen Silk told interest.co.nz that the Monetary Policy Committee would be keeping an eye on price setting behaviour and world dynamics - both things could influence how the OCR moves, whether that’s up or down.
16 Comments
OCR should be at 5.25% now!
The Taylor rule knows it and it will get there, the easy way or the hard, loooong way!!
This will surely put the brakes on any further cuts to the OCR.
Its hike, hike, hike time!!!
hikes will not impact insurance rates or power at all........ they are just a pass through mechanism
You clearly don't own a business Gecko, hiking interest rates substantially will kill several more businesses that are currently struggling. You probably don't care if businesses go bankrupt, but remember businesses hire people, so more business failures = more people losing their jobs and fewer being hired.
Yes but persistently high inflation erodes living standards for everyone as purchasing power is eroded.
Kill a few zombie companies that were surviving from 0% interest rates/QE/loose monetary conditions or save the purchasing power of the NZD for the benefit of all the countries citizens?
I think we may now see wholesale interest rates on the rise again in response to this news. Which in turn will flow through to mortgage rates and term deposits.
It may also see interest expense start rising across businesses which in turn will flow through to increased prices for goods and services (as companies cover the increased debt expense) - which in turn will require workers to demand higher wages to pay for their living costs. Which in turn will create more measured inflation at the following CPI announcements this year.
Basically the OCR is too low again and probably has been for the past 6+ months in my opinion - and I still don’t understand why the RBNZ were cutting at the last review when the CPI trend was up (towards the upper limit of mandate) over multiple measurements and wholesale rates on the rise.
Are we going to hear ‘it’s transitory’ again soon from the RBNZ or do they learn from their mistakes?
Heath insurance will continue to rise as clients are claiming more, Insurers are running to keep in front of claims. This may or may not be a reflection of more people believing that relying on public services is not good.
Rates will continue to rise due to deferred maintenance over decades due to glamour projects in many cases.
Electricity prices are super weather dependent, at least it's raining this summer.
Matches what I and others have been saying about food prices at the Supermarkets taking another leg up.
Those electricity price increases are pretty criminal, seems very little reason for it, other than gouging. With rates and insurance up hugely too, our household is definitely going backwards from a year ago, pay increases not matching on the ground inflation.
Some serious OCR increases should be in the works now, probably race by 100 basis points would make sense.
sheep and beef prices will imho continue to rise, yes high cpi but with low NZD great for trade balances
My guess would be 3 small hikes this year, beginning as soon as late May. After that, it's anyone's guess.
Ouch, that's significantly higher than the RB's expectation of 2.7%. Any further OCR cuts will be off the table and the conversation at the RB will start pivoting towards the possibility of raising rates.
Yvil, like it or not, hikes are a comming.
When is the next GDP announcement?
It will be interesting if at the Feb OCR announcement the RBNZ choose to do nothing even though CPI is rising and outside it’s mandated level. It could turn into a real egg on face situation again mid-year if CPI is up to 3.5% while GDP growth is still going nowhere or is negative.
It means we have proper stagflation on our hands and then we need higher interest rates to avoid recession instead of lower interest rates - a complete flip of mindset from the past 20-30 years (where we were avoiding deflationary recessions, not inflationary recessions).
A bad GDP read now could cause the RBNZ to say ‘hey look the economy isn’t growing so we are not going to raise rates in Feb’. This could be a real error in judgment if we have stagflation developing as it’s the wrong call. The economy may need higher rates to generate GDP growth, not lower rates.
Government has reduced (kind of) spending to help slow down inflation. Meanwhile: https://www.stuff.co.nz/nz-news/360928413/another-it-outage-impacts-sou…
Get rid of all the health IT people and you will get some fairly predictable results...I did say this would happen after they reduced the health IT department by what 60%?
Stagflation is now entrenched.
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