The Reserve Bank has revealed that the annual inflation rate for 2025 was 3.1%.
It puts the inflation rate outside the bank’s target band of 1 to 3%.
While it’s slowed significantly since the most recent peak of 7.3% in the June 2022 quarter, it has risen every quarter since December 2024.
And while economists expect it to sit around 3 or 3.1%, the Reserve Bank’s November prediction had it at 2.7%.
But what does it all mean? And are dreams of a quick fix in 2026 in the rear-view mirror?
NZ Herald business editor at large, Liam Dann, told The Front Page that the big contributor to the increase was household utilities.
“Power and rates are the big ones. Big energy price rises, and rate rises for that December quarter we’ve just had.
“There were some big increases in things like international airfares, which is a pretty narrow thing. You either travelled or you didn’t. So that’s a volatile figure,” he said.
Dann expects the increase will make it more likely that interest rates will go up.
“It’s certain they’re not gonna be cutting interest rates with inflation up at these levels, and depending on what happens next, it looks increasingly like we’ll see interest rates rising this year.
“Markets are already quite aggressively pricing in a rate hike by September and saying that there’ll be two hikes by the end of the year. They were pricing that in before today’s number. I guess you could say there isn’t too much surprise for them there.
“Economists had been a bit more cautious, but they’re starting to move their forecasts, and they’re saying at least one rate rise this year.
“It’s something for people to think about when they’re looking at their fixed terms over the next few months that it’s kind of as good as it gets in terms of lower interest rates,” he said.
Prime Minister Christopher Luxon’s state of the nation speech echoed a “control what you can” narrative regarding the country’s economy.
“If they were gonna do more radical stuff, they needed to do it in that first year or so, if they wanted to.
“I think they’re talking about doing the basics and building for the future or something ... And he’s picked up on the idea that, look, recovery isn’t gonna be good enough to solve all of New Zealand’s problems, but it would be a window of economic stability.
“But there are those couple of elephants in the room for the Prime Minister. One is Donald Trump, and the craziness of what can happen in the world because of him. As we saw with tariffs last year, that can really derail things for New Zealand.
“The other one is more on the local front, one of his own coalition partners. In order to win an election, looking at current polling, he’s very much in need of Winston Peters, who’s saying he’s not voting for an India free trade deal, he’s gonna be opposed to some of National’s other ideas, like looking at selling some state assets and raising the retirement age.
“So, some of the structural things that National wants to do, it’s got a bit of a problem there with its coalition partner,” he said.
Listen to the full episode to hear more about:
The Front Page is a daily news podcast from the New Zealand Herald, available to listen to every weekday from 5am. The podcast is presented by Chelsea Daniels, an Auckland-based journalist with a background in world news and crime/justice reporting who joined NZME in 2016.
You can follow the podcast at iHeartRadio, Apple Podcasts, Spotify or wherever you get your podcasts.