Annual inflation has dipped to 3.7% in the September quarter, Stats NZ has announced this morning.
The Stats NZ figure is down from 4.1% in the June quarter, but economists warn the dip is likely to be short-lived, with inflation expected to climb again in the next quarter.
Petrol was the biggest driver of the annual rise, with prices up 19.1% on a year earlier. Without the jump at the pump, annual inflation would have been 3.2%.
“Petrol prices fell in the September 2026 quarter, compared with the June 2026 quarter,” Stats NZ prices and deflators spokesperson Nicola Growden said.
“However, petrol prices remained higher than in the September 2025 quarter.”
The cost of constructing new housing also increased, up 3.2%.
“Respondents reported that higher costs for materials, subcontractors, labour, and fuel contributed to rising prices for new housing,” Growden said.
Other contributors to annual inflation included electricity (up 9.3%), council rates (up 6.2%) and international airfares (up 12.5%).
Local authority rates and payments are measured once a year in the September quarter and have been one of the main drivers of annual inflation in recent years.
“The 6.2% annual increase in rates in the September 2026 quarter follows an 8.8% annual increase in the September 2025 quarter,” Growden said.
Olive oil and butter, vegetables, and audio-visual equipment all fell in price over the year.
More than 85% of the CPI basket increased in price in the 12 months to the September 2026 quarter. In contrast, about 13% of the basket fell in price – the lowest proportion since the December 2023 quarter.
Inflation result largely expected
Bank economists had forecast between 3.7% and 4%.
In a note published earlier this week, ASB senior economist Mark Smith said the September quarter data being released today was already old news.
"Q3, however, is in the rear vision mirror,” he said.
“Sharp Q4 increases in vehicle fuels and airfares, rising construction costs and the low NZD impact are expected to push annual CPI inflation to 4.5% by Q4."
Smith said the bigger worry was that fuel costs would become entrenched.
"We are concerned that inflation over 2027 could prove slow to recede despite favourable base effects," he said.
"The uplift in New Zealand fuel prices is looking increasing persistent with much greater risk that this follows through into wider wage and price setting."
More rate hikes on the table
Higher inflation forecasts are likely to mean more pain for loan holders.
The Reserve Bank uses the official cash rate to keep inflation within its 1-3% target band.
When prices rise too fast, it lifts the OCR, which pushes up what banks pay to borrow money. Banks pass that on through higher mortgage and loan rates.
Markets have priced in a high chance the Reserve Bank will lift the OCR by 25 basis points to 3% next Wednesday.
Smith said ASB's 2027 forecasts were under review, and the risk was that rates would need to climb higher if inflation stayed stubborn.
“Higher for longer inflation is a major headache for the Reserve Bank as it risks pressuring inflation expectations and other nominal anchors higher,” he said.
"We currently expect 25 basis point hikes in October and December and a 3.25% OCR peak. However, risks to the OCR over 2027 are skewed to the upside."
SHARE ME