Willis signals worsening inflation outlook

Public Policy / news

Finance Minister Nicola Willis signals worsening inflation forecasts, with no clear central scenario from Treasury

30th Mar 26, 10:01pm by Anna Whyte

Finance Minister Nicola Willis and Associate Energy Minister Shane Jones

Finance Minister Nicola Willis speaks to reporters alongside Associate Energy Minister Shane Jones and Prime Minister Christopher Luxon at a post-Cabinet press conference. Image source: Mandy Te

Inflation will go much higher this year and will stay above the Reserve Bank's target band, Treasury is predicting, after latest scenarios presented to the Finance Minister paint a worse picture than that of just two-weeks-ago.

Nicola Willis briefed journalists in mid-March of Treasury forecasts of 3.7% in a “worse-case scenario” based on a prolonged conflict lasting the rest of the year, with oil prices continuing to rise. That figure was met with skepticism from the likes of Westpac economist Kelly Eckhold who said 3.7% was likely closer to baseline.

While Willis would not present any Treasury inflation forecasts during Monday’s post-Cabinet press conference, she said Treasury’s latest scenarios, “in which they take into account a longer conflict with deeper disruption to supply chains, they have inflation peaking higher than I've previously presented to you”.

“But they are continuing to refine their scenarios and their planning.”

Willis said Treasury caveated their advice on the length of the conflict, the timing of the Strait of Hormuz reopening and the level of disruption to supply chains.

“They haven't landed on a final scenario, nor even a central scenario… There's so much changing."

“What I can be open with you about is that they think inflation will go much higher this year, and it will stay out of our target band.”

Asked on RNZ on Monday morning about inflation, Eckhold said; the “base case now is just over 4% and if you want to talk about worst cases, then we probably should be adding a couple of percentage points on.”

Labour leader Chris Hipkins said giving New Zealanders the range of inflation forecasts that Treasury were advising was a “perfectly reasonable thing” for the Finance Minister to do.

“I'm sure people will accept that it's going to move, but at least giving us an idea of… the best case scenario and the worst case scenario, what sorts of things could we be looking at.”

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12 Comments

by Jonny.Foe | 30th Mar 26, 10:54pm 1774864492

If petrol prices stay at current levels for the April to June period, CPI will go well above 5%. Its just maths. The direct formulaic hit will be two additional percentage points (fuels and air / road passenger services). Now add on the secondary effects as other costs / prices increase.

I spat out my drink when Treasury talked about 3.7% as a worse case. Completely unserious analysis.

by interesting1234 | 31st Mar 26, 8:51am 1774900263

Genuine question: Would you be able to keep your analysis coming on say a monthly basis for interest.co.nz? You seem far more clued in than many of our government agencies, and I'm sure I'm not the only one that appreciates your ability to see through the spin and the fluff. Also, I enjoy learning about how you come to your conclusions, as it helps give a more broad view of the economy in response to changes.

by JimboJones | 31st Mar 26, 9:25am 1774902323

Their worst case seemed like the best case by my calculations too. Insane that they could have come up with that number, it must have been calculated by a politician not a statistician. Heads should be rolling but wont.

by Independent_Observer | 31st Mar 26, 9:48am 1774903737

RBNZ, Treasury and Willis were trying to jawbone wholesale markets so that mortgage rates wouldn't rise too much. Worked for a few days...but then they called their bluff.

by blobbles | 31st Mar 26, 12:58am 1774871914

It's been abundantly clear to many of us over the last couple of decades since the Iraq war that we should move toward electrification as fast as possible. Even Elon Musk saw such a day coming as we have now, which is one of the reasons he started Tesla. I find it increasingly hilarious that governments of all stripes are waking up to the real issues of energy security and fiddling at the edges, with this current lot hell bent on full on denial of real energy security even before this conflict. Even the last lot were just fiddling at the edges with the clean car discount policy and were too late to the party with their subsidised solar policy which should have happened a decade ago.

We keep electing idiots that don't see the real problem because most of us are in denial of where the energy comes from that we need to continue our civilisation. I guess we have elected the governments we deserve, now its time to lie in the bed we made for ourselves. Start growing veggies people, its going to be an expensive winter!

If ground troops get involved in Iran, its likely to be a meat grinder for a few years with no real winner. With inflation spiking everywhere far worse than COVID. That's unless Trump gets impeached and thrown out after this years mid terms, but any incoming President will be stuck in a quagmire of his making. The hilarious part is that Trumps team were trying to negotiate the same deal with Iran they had that Trump pulled out of in 2016, Israel hated that idea so just started attacking Iran without the US's permission. So the US had to go along with them. Essentially the US ME policy is now dictated by Israel who wants to revisit atrocities the Jews suffered on everyone around them, destabilising everyone so they can become the dominant power.

by powerdownkiwi | 31st Mar 26, 7:23am 1774894990

Yes, we need to move away from fossil energy.

Regardless of 'cost'.

But we cannot run THIS economy, on 'renewables'. Which is why Musk has faltered, and why most GND initiatives have too.

The US is a dying hegemony, no question. So Israel, hard as it may be to imagine, is doomed to implode too. Add in Netanyahu's go-directly-to-jail card, and you have Armageddon.

by Pa1nter | 31st Mar 26, 7:41am 1774896079

Musk has faltered, because there's no profit in electric cars. He's just released Teslas electric semi, 10 years later than promoted.

You're right, we are trying to slam the wrong shaped pegs in the wrong hole.

Perhaps though, learning will shortly occur.

by powerdownkiwi | 31st Mar 26, 8:17am 1774898235

Not until the final whistle has blown.

Then it'll be a matter of shouting above the din.

But it may not be loud enough...

by JimboJones | 31st Mar 26, 9:31am 1774902695

You say it like its a switch that has to be flicked in a day. We can transition to renewables over a period, and yes the economy may not grow as much, it may even go backwards. But I don't think the downside is as bad as you think.

The time to start that was 5 years ago (when Labour did actually start doing it).

by Bruce Crawford 4279 | 31st Mar 26, 10:32am 1774906361

Don't mention the nuclear option.! I did it once, but I think I got away with it.

by interesting1234 | 31st Mar 26, 8:48am 1774900119

“But they are continuing to refine their scenarios and their planning.”

The pun isn't lost on me. Had to chuckle.

by Averageman | 31st Mar 26, 9:27am 1774902445

Its transitory blah blah. Yeah right...Tui.