Nicola Willis won’t say how bad the cost of living could get, but bank predictions aren’t good

Tuesday, 31 March 2026

Finance Minister Nicola Willis has revealed that inflation could go “much higher” than 3.7% this year, but stopped short of revealing Treasury’s latest worst-case scenarios. Political reporter Emma Ricketts takes a closer look at how bad things could get.

Nicola Willis told reporters on Tuesday morning that there had been a misunderstanding over the advice she is receiving from Treasury on inflation.

But what the finance minister wouldn’t say - either on Monday or Tuesday - is whether officials’ latest worst-case scenarios have inflation peaking higher than it did from the Covid-19 pandemic.

Willis has clarified that she hasn’t been provided with any updated fiscal forecasts, only “stylised, high-level and generalised scenarios and assumptions”, based on the ever-changing international situation.

These scenarios showed inflation peaking “much higher” than Treasury’s previous worst-case scenario, which had inflation at 3.7%. But she has refused to reveal any more detail, saying the situation was changing too rapidly.

“How long the conflict lasts, how high the oil price goes, how long the destruction lasts, and all of those variables could vastly change our forecasts … this is what we are grappling with as we put our forecast together,” she said.

Willis said New Zealanders will need to wait for the next Reserve Bank forecast to get an idea of where things are headed.

As a reminder - in the peak of the cost of living crisis that followed the Covid era, inflation surged to 7.3%.

“Well, I think everyone can see, the longer this conflict goes on, the worse it is for the world, and the worse it is for New Zealand,” Willis said on Tuesday.

“Every passing day, week, potentially month, makes this fuel crisis worse, both in terms of the price that is rising for the price of oil and refined products, the disruption to supply, and the potential losses of supply throughout the world.”

But while Willis remains coy, others have been crunching the numbers. And according to them, things don’t look good.

ASB chief economist Nick Tuffley is forecasting elevated oil prices for the next six months, in which case inflation would peak at 4.2% in the June quarter, and won’t return to within the target band until mid-next year.

In a forecast released on Monday, Westpac chief economist Kelly Eckhold said the bank expects inflation will peak at 4.1% in mid-2026, and will remain above 3% through the first quarter of 2027.

That’s assuming tensions continue for at least another month. In a scenario where the Strait of Hormuz remained closed for another six months, inflation could peak over 7%, Eckhold said.

In that scenario, disruptions to economic activity and falls in business and consumer confidence would drag down economic growth to just 0.6% this year, with unemployment rising to 6.1%.

So, what does it all mean for New Zealanders?

Basically, it’s too early to say how bad things will get. But if inflation goes up around 4% - which is looking pretty likely to this point - the cost of living crisis is going to get worse.

Higher prices, less spending, contracted economic growth and higher unemployment.

Plus, there are other things happening in the market too.

The Commerce Commission told RNZ on Tuesday that power prices were set to increase by at least 5% this year, thanks to an increase in electricity lines charges. Many retailers have already notified their customers.

While this is bad timing, the Commission was “satisfied that the price increases were actually needed,” chair John Small said.

So, we may not know what Treasury’s latest worst-case scenarios are.

But the message across the spectrum is clear: buckle in, the cost of living crisis is going to get worse.