The consumers price index (CPI) increased 3% in the 12 months to the September 2025 quarter, according to figures released by Stats NZ today.
The 3% increase follows a 2.7% increase in the 12 months to the June 2025 quarter.
But power prices were up 11% and rates rose 8.8%.
The Reserve Bank of New Zealand’s target band for the annual inflation rate is 1 to 3%.
“The 3% annual inflation rate in the September 2025 quarter is the highest since the June 2024 quarter when it was 3.3%,” prices and deflators spokesperson Nicola Growden said.
The largest contributors to the annual inflation rate were all in the housing and household utilities group. The main contributors were:
The top three contributors make up around 17% of the weight in the CPI basket.
“Annual electricity increases are at their highest since the late 1980s, when there were several major reforms in the electricity market,” Growden said.
“The 11.3% annual increase in electricity prices is the largest since the March 1989 quarter when they rose 12.8%.”
Economists had widely expected the annual rate to land at about 3%.
But there was widespread agreement that this would represent a peak in this latest cycle of inflation, allowing the Reserve Bank to look through the breach and cut the Official Cash Rate again in November.
Today’s number confirmed that domestically-generated inflation was easing, said ASB senior economist Mark Smith.
“This should cool overall inflation over 2026,” he said. “With few economic tailwinds on the horizon, more policy support is needed to get the economy moving to prevent medium-term inflation undershooting the 1-3% inflation target midpoint.”
ASB expects a 25bp OCR cut in November, with a risk that a further cut was needed.
On the plus side a 2.6% increase in rents was the smallest annual increase in over four years. Rents increased 2.9% in the 12 months to June 2021.
Of the five broad regions measured by Stats NZ, rent prices in Canterbury and Rest of South Island had the largest annual increases, both up 4.3%. Wellington had the smallest annual increase, up 0.1%.
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 annual increase in rates in the September 2025 quarter was lower than the 12.2% increase in the September 2024 quarter, but higher than the average increase of around 7.3% observed between 2018 and 2025,” Growden said.
But despite being down from its post-Covid peak, the cost of living remained problematic for the economic recovery, Smith said.
“In our view, this is the largest single headwind facing the household sector,” Smith said.
“We have seen a cumulative increase in household costs of around 25% since the end of 2019. Increases are somewhat larger for key necessities like food and housing. Little wonder households feel under the pump.”
There were promising signs that food price inflation, which has been elevated in the past year, has now peaked.
The monthly Stats NZ Selected Price Index – which covers food, travel and accommodation costs (about 46% of the total CPI) was released last Thursday.
It showed food prices were down 0.4% for the month of September, taking the annual rate of food price rises to 4.1% – from 5% in the year to June.
“Seasonal rises for tomatoes, cabbage, capsicums, lettuce, and broccoli all contributed to the rise in vegetable prices,” Growden said.
Vegetables, up 12.2%, for the quarter (15% of the 1% quarterly rise).
Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.