Annual inflation is projected to soften slightly in the September quarter but it’s 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.
As of the June quarter, annual inflation was at 4.1% - the highest annual inflation rate NZ has seen since hitting 4.7% in December 2023.
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’s Official Cash Rate (OCR) review on October 28.
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).
On Friday, there was another nudge towards a potential OCR hike this month following the release of Statistics NZ’s Selected Price Indexes (SPI) which showed fuel prices rising.
"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.
“Petrol 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.”
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.
Meanwhile the New Zealand dollar has been falling.
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.
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.
The RBNZ has previously hinted strongly at a possible pause at the next OCR review following a hike in September to 2.75% 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.
‘We hoped that June would see the peak … that is no longer likely’
ANZ economists, in their weekly data wrap, said September’s SPI was slightly firmer than they expected, with a sharp increase in accommodation prices the largest surprise versus their expectation.
“The 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.”
BNZ senior economist Doug Steel also noted that the September SPI figures were generally higher than they had pencilled in.
“Most parts weren’t much higher than expected but, disturbingly from an inflation risk perspective, bigger increases were widespread. This accumulated to a meaningful upside surprise.”
Kiwibank economist Alexandra Turcu said: “We 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’t last.”
“At 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.”
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’s control and/or influence.
“Kiwi 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.”
“We hoped that June would see the peak in the conflict and therefore a peak in prices. That is no longer likely," she said.
The SPI for July, August and September had shown some “moderation” and “compared to the June quarter, fuel prices actually eased in the September quarter, and food and housing rents were subdued”, Turcu said.
“As 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’s hoping for a lower inflation print than we’re predicting.”
Could September's CPI be a 'head fake lower?'
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.
“And just when you thought this was good news … we’ll then have to look to the December quarter, in which we’ll have record high petrol prices to contend with. But alas, we have to take it one quarter at a time.”
BNZ's Steel said: "We always thought that third quarter inflation was not going to be far from the RBNZ’s September MPS projection. That remains the case. Indeed, we now see it matching the Bank’s forecast."
"Annual inflation of 3.9% in the third quarter, would be an easing from the second quarter’s 4.1%. This looks like a head fake lower."
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."
Concerns for December CPI quarter and beyond
“Today’s 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’s 3.9% projection in its September MPS," Steel said.
“The [Reserve] Bank has previously acknowledged some upside risk to near term inflation … The upside risk is looking punchier by the day.”
Steel said before Friday’s SPI release, they saw an upside risk to its December annual inflation projection of 4.3%.
“Recent fuel price increases put this at risk of lifting to around 4.5%. Today’s data raises the prospect of a number even north of that.
“We will look through the details of today’s data before finalising our fourth quarter CPI estimate. But suffice to say that our 4.3% forecast is living on borrowed time.”
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."
Westpac NZ senior economist Satish Ranchhod said while annual inflation was expected to soften in the September quarter, this was likely to be a “temporary reprieve”.
“With 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’s set to remain above the RBNZ’s forecast for most of next year.”
Last week Westpac NZ economists revised their inflation forecasts and now expected annual inflation to hit a three-year high in the December 2026 quarter, driven by “sharply higher” global fuel prices and a tumble in the NZ dollar.
‘That all feels a bit too hot for the central bank to sit idly by’
Ranchhod said even if the overall inflation result for September was close to what’s been forecasted, the underlying detail will be important.
“The RBNZ will be watching closely for signs that high fuel prices are spilling over into other prices, especially with global oil prices taking another step higher recently. With that in mind, the strength of the various core inflation measures will be a key focus for the RBNZ.”
In a preview of the CPI for the September quarter, ANZ senior economist Miles Workman said the RBNZ’s focus will be on whether higher fuel prices are generating a broader inflationary impulse.
“But even if those measures remain contained and the third quarter CPI prints close to our forecast (and below the September MPS forecast), the lower NZD and higher oil prices since September have materially changed the outlook. In our view, that keeps an October OCR hike firmly on the table," Workman said.
Kiwibank’s Turcu said core inflation print will be key.
“The RBNZ projected that inflation would remain elevated in the near term, with most of the price effects still being direct from oil prices, rather than indirect from other goods and services. Even so, their forecast in September was for a headline inflation figure of 3.9%.”
“We are expecting them to hike the interest rate one more time this year, the question is … will it be this month, or in December?”
With the market pricing in a higher chance of an October hike, “this inflation print will tip the odds,” Turcu said.
“The core inflation print will be key. The other key will be evidence of second round price effects. That is, if we see businesses passing on higher operating costs from oil, onto consumers.”
BNZ’s Steel said: “Indeed, on our estimates, CPI excluding food and energy annual inflation in third quarter is likely to push meaningfully higher than its 2.5% second quarter outcome."
“That all feels a bit too hot for the central bank to sit idly by. We remain of the view that the Bank will continue lifting its cash rate including at its upcoming October meeting.”
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