New Zealand’s annual inflation rate fell to 3.7 per cent in the September quarter, down from 4.1 per cent in June, as a brief lull in petrol prices took some of the heat out of household budgets. But bank economists say the relief will be short, and almost all of them still expect the Reserve Bank to lift the official cash rate next Wednesday.
The figures were released by Stats NZ on Thursday. The consumers price index rose 0.7 per cent in the three months to September, compared with 1.5 per cent in the June quarter, and the annual rate is still well outside the Reserve Bank’s target band of 1 to 3 per cent.
Petrol remains the single biggest driver of the annual figure. Prices for 91 and 95/98 octane were up 19.1 per cent on a year earlier, which Stats NZ says accounted for 17.5 per cent of the annual inflation rate. If petrol prices had not changed, the CPI would have risen 3.2 per cent over the year.
Stats NZ prices and deflators spokesperson Nicola Growden said petrol prices fell in the September quarter compared with the June quarter. “However, petrol prices remained higher than in the September 2025 quarter,” she said.
That quarterly fall of 6.5 per cent came after a 20.1 per cent jump in the June quarter, and it was the largest downward contributor to the quarterly rate. Anyone who has filled up this month knows the dip did not last. Petrol hit a record $3.60 a litre earlier in October, and those prices will land in the December quarter numbers.
Beyond the pump, the pressure is spread across the things households cannot easily avoid. Electricity was up 9.3 per cent over the year. Local authority rates and payments, which are measured once a year in the September quarter, rose 6.2 per cent after an 8.8 per cent rise the year before. International airfares were up 12.5 per cent annually and jumped 14.3 per cent in the quarter alone, the biggest quarterly increase since the end of 2022, with fares to Europe and Asia leading the way.
The cost of building a new house rose 3.2 per cent over the year. Growden said builders surveyed by Stats NZ reported that higher costs for materials, subcontractors, labour and fuel were pushing up the price of new housing.
Rents, which drove much of the inflation of earlier years, were flat in the quarter and up just 0.2 per cent over the year, RNZ reported. Olive oil, butter, vegetables and audio-visual equipment all fell in price over the year. But the list of things getting cheaper is getting shorter. More than 85 per cent of the CPI basket increased in price in the year to September, and only about 13 per cent fell, the lowest proportion since the December 2023 quarter.
That breadth is what worries the economists. The headline number came in below the Reserve Bank’s own September projection of 3.9 per cent and below most bank forecasts, but the measures that strip out the volatile items moved the other way. Excluding food, fuel and household energy, prices rose 2.9 per cent over the year, up from 2.5 per cent.
“We would characterise the signal in the core measures as a little worrying, meaning these data are perhaps more hawkish than initially meets the eye,” ANZ senior economist Miles Workman told interest.co.nz. He said the fuel shock may be broadening across the basket. “While that might prove to be more noise than signal, it is something the Monetary Policy Committee will be concerned about.”
BNZ chief economist Mike Jones made the same point to RNZ. “The proportion of items that rose in price increased to 59.7 percent, up from 56.2 percent last quarter and the highest since mid-2023. At the same time, the average of the core inflation measures designed to strip out volatility rose to 3.1 percent,” he said. “All of this will concern an inflation-targeting central bank. At 2.75 percent, the OCR remains at a stimulatory setting.”
The Reserve Bank raised the cash rate from 2.50 to 2.75 per cent in September and hinted at a pause. Since then oil has climbed again and the dollar has slipped. Financial markets have a 25 basis point rise to 3 per cent on 28 October almost fully priced in, and ANZ, Westpac, BNZ and ASB all now expect it.
Westpac senior economist Satish Ranchhod said market views had “coalesced around an October hike” and that “the RBNZ will regard this as the path of least resistance, and we now expect that they will deliver.” BNZ’s Doug Steel said the third quarter result was a tick below the Reserve Bank’s projection but would not materially alter the bank’s thinking. “All along we thought the precise third quarter outcome was of secondary importance to what is shaping up in the fourth quarter, which, looks to be a long way north of the 3.9% that the RBNZ projected in its September MPS.”
ASB has gone further and lifted its forecast for annual inflation in the December quarter to 4.7 per cent. “Sharp fourth quarter increases for fuel prices, airfares and rising construction costs are expected to push annual CPI inflation well above 4% by the end of the year,” senior economist Mark Smith said. ASB does not expect the annual rate to fall back below 3 per cent until the end of 2027.
Kiwibank is the outlier. Its economists Alexandra Turcu and Elliott Lowe do not think a rise is needed, but if one is coming they want it done quickly. “We say get it over and done with if they’re going to do it. Take the interest rate to 3% and hold it there so we can have some stability,” they wrote. Their argument is that businesses have not been able to pass higher fuel costs on. “Consumers are spending more on petrol and have less to spend on everything else.”
Kiwibank chief economist Jarrod Kerr put it more bluntly to RNZ. “It’s a bit confronting isn’t it?” he said. “You’ve got this rise in petrol prices that’s feeding through to a few things and there’s this fear that businesses will pass it on, because they keep telling us they will, yet on the other side, they haven’t yet.”
Infometrics chief forecaster Gareth Kiernan told RNZ there was a strong case for taking the cash rate back to a neutral 3 to 3.25 per cent. “Although petrol is a major contributor to where the headline number is, the Reserve Bank still doesn’t have a lot of room to manoeuvre in terms of keeping broader inflationary pressures under control,” he said.
With the election just over two weeks away, both major parties claimed the numbers. Finance Minister Nicola Willis called the fall encouraging but conceded the next set of data will look worse. “We can’t control everything in the Middle East, but we can control our own government spending. And by keeping that disciplined, we keep the fuel off the fire,” she said. Labour’s finance spokesperson Barbara Edmonds said the cost of living was still going up. “Inflation is 3.7%, outside the Reserve Bank’s target band, and economists are warning prices could climb even further before Christmas,” she said. “Every week it just keeps getting worse.”
For households the practical upshot is that mortgage rates are unlikely to fall any time soon, and the petrol price people are paying this week is the one that will show up in the next inflation report in January. The Reserve Bank’s decision is due on Wednesday 28 October.
Have you noticed prices easing anywhere, or is everything still going up? Tell us what you are seeing at the checkout and the pump in the comments below.
This article was written by AI, briefed to report the facts, hopefully without some of the bias people bring to the job 🙂
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