Power and rates bills push inflation up to 3%

Monday, 20 October 2025

Annual inflation climbed to just over 3% in the three months to the end of September, Stats NZ has reported.

Without rounding to the nearest decimal place, the figure was 3.04% — fractionally outside the Reserve Bank’s 1% to 3% target band.

However, acting Finance Minister Chris Bishop described it as being inside the zone.

“This is the quarter in which most economists were expecting inflation to peak so it is pleasing to see it remain within the Reserve Bank’s target range,” he said.

Inflation was up from 2.7% previously.

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Soaring power and rates bills were squarely behind the rise.

Electricity prices were up 11.3% over the year and rates bills were up 8.8%, Stats NZ reported.

Bishop said the figures highlighted the importance of increasing electricity supply and competition as well as the impact local government rates had on people.

Council of Trade Unions economist Craig Renney said wages were rising by less than inflation, “putting more stress on already overstretched household budgets”.

Stats NZ prices spokesperson Nicola Growden observed annual inflation had not been so high since the June quarter last year, when it came in at 3.3%.

“Annual electricity increases are at their highest since the late 1980s, when there were several major reforms in the electricity market,” she said.

The silver lining in the figures is that non-tradeable or so-called “domestic” inflation — stemming from goods and services whose prices are determined locally rather than by international markets — has been falling for more than two years.

It now stands at 3.5%, down from its 2023 high of 6.8%.

The rise in headline inflation had been anticipated by bank economists and the Reserve Bank, which expects it will drop back within its target range in the current and future quarters.

ASB, for example, had correctly estimated the new inflation figure at exactly 3.04%.

That means the increase may not put at least one further cut in the Official Cash Rate, which currently stands at 2.5%, in significant doubt.

Westpac senior economist Satish Ranchhod noted the quarterly increase in prices, at 1%, was slightly above the Reserve Bank’s August forecast of a 0.9% rise, but said that was unlikely to be a major concern for the central bank.

ASB senior economist Mark Smith said there were valid reasons to think inflation would soon drop back under 3%, including the softer domestic backdrop, cooling wage growth, the sluggish housing market and abundant spare capacity.

However, some concerns remain that inflation could surprise, either sooner or slightly further down the track.

The value of the New Zealand dollar has declined by about 3% against most major currencies, including the United States and Australian dollars, the euro and the Chinese yuan, since the end of September, which could be expected to push up the price of imports.

BNZ economist Matt Brunt said ahead of today’s inflation release that the bank was watching petrol prices and currency movements.

“We are conscious that fuel prices have been tracking higher than we have pencilled in for October to date,” he said.

Some steep rises in utility bills are also still in the pipeline.

Contact Energy has said it will hike gas prices for about 40,000 residential customers by an average of about 17% from December 1.

Economic forecaster Infometrics has raised some concern that a return to economic growth combined with the lagged impact of steep interest rate cuts could result in a bump in inflation down the track that could require a fresh round of monetary tightening by the Reserve Bank in 2027.

Bright spots in today’s inflation numbers were a 10.6% annual drop in the price of pharmaceuticals and a 15.2% drop in the price of telecommunications equipment.

Rents were up 2.6% annually, the smallest annual rise in more than four years.