Annual, quarterly CPI exceeds expectations - and fuel costs aren’t even fully felt yet
Tuesday, 21 April 2026
The high and rising cost of power drove higher-than expected inflation across the year to March, while a spike in petrol and pharmaceutical products added to their pain at the checkout in the first three months of this year.
This morning, Stats NZ revealed that inflation had gained 0.9% in the March quarter - above the 0.8% picked by most economists — and inflation was at 3.1% on an annual basis.
The CPI looks at a basket of goods including food, alcohol and drinks, apparel, rents, homewares and housing services (although not property), health, transport and communication costs, education, recreation and other services.
The 3.1% annual price inflation in the cost of this basket was in excess of what most economists had picked.
Kiwibank had forecast it would hold steady at 3.1%, and BNZ said 3%, but ANZ and ASB tipped it would fall to 2.9% and Westpac forecast it would fall to 2.8%.
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Prior to the Middle East conflict, the Reserve Bank had also been expecting annual inflation to fall to 2.8%, although now says it will likely reach 4.2% in the June quarter as more of the effects of the fuel crunch cascade through the economy.
Treasury officials are understood to have warned it could climb to 7.5% by the end of the year — above its previous post-Covid high — in a worst case scenario they considered.
The Reserve Bank’s target band for annual inflation is 1-3%, and anything over that suggests rate hikes will be more likely in the rest of the year than not.
Westpac senior economist Satish Ranchhod said many measures of core inflation continued to run at levels close to or above the top of the target band.
“For the Reserve Bank, that highlights the firm starting point for inflation even before the recent oil price shock,” he said.
ANZ senior economist Miles Workman described the data as “mixed”.
“Today’s stronger starting point for headline inflation and zero progress on non-tradeable inflation won’t be welcome, particularly in an environment when inflation expectations are threatening to drift meaningfully higher.”
But the focus remained on “inflation persistence”, and today’s data offered little new insight on that, he said.
Power
Higher electricity prices lay behind both the quarterly and annual result. Over the year, power prices gained 12.5%. This component of the CPI accounted for more than a tenth of the 3.1% annual increase and it was the third quarter in a row that electricity was the largest contributor to inflation rising.
Power prices have gained by 19.8% since March 2024.
Other notable contributors to the annual CPI increase were rates - up 8.8%; meat and poultry gained 8.6%, and petrol had gained 1.1% over the year, although that only takes in a small amount of the Iran war-related petrol price spikes.
Rents had risen 1.2% over the year, but that was the smallest annual increase in 16 years, and the last such measure came from 2010. Rent increases were 0% in the quarter, and in Wellington and Auckland had fallen 0.5% and 0.1% respectively.
Other prices falling in the year included audio visual equipment, dropping 21.2% over the 12-month period, real estate services were down 4.8%, against the backdrop of a subdued property market.
Quarterly
In a quarterly sense, prices were 0.9% higher than the quarter to December with petrol price increases of 3.5% driving the rise, despite the fact fuel supply and stocks are, according to the Government, currently within normal ranges.
There was a difference within regions - in Christchurch petrol prices gained 4.3% while in Auckland they rose 4% and in Wellington, they were up 2.9%.
Petrol was the third largest item for New Zealand households after rent and construction. Without the cost of petrol rising, quarterly inflation would have been 0.8%.
The quarterly figure is designed to measure the average change in prices through each quarter, rather than prices at the end of each quarter, so it only includes one month’s worth of war in Iran, which started with an attack on the country by the US and Israel on February 28.
The lion’s share of the direct and indirect effects of higher fuel prices are likely to be more savage in the next CPI measure, in the three months to June.
Prices for pharmaceutical products also increased 17.7% in the March quarter, specifically driven by an increase in prescription charges. The prescription scheme changed on February 1, meaning households now had to pay for exceeding the 20-prescription mark, rather than receiving the medicines without charge.
Together, petrol and pharmaceutical products accounted for more than a quarter of the 0.9% quarterly CPI increase.
As aforementioned, electricity was another big contributor, and confectionery, nuts, snacks and fruit price rises also contributed. Chocolate prices, given the disruption of supply chains, are at record highs, for example. Boxed chocolates in particular had appreciated in the period, Stats NZ said.
Prices heading down in the March quarter included International airfares, and overseas accommodation prepaid in New Zealand. They dropped 7% and 4% respectively.
Comparisons
New Zealand’s 3.1% annual inflation rate is exceeded by the US, which in March came in at 3.3%.
Other countries New Zealand compares itself to took their measurements in February, and, therefore, largely discount the impact of the Iran war. Australia’s was 3.7%, the OECD average was 3.4% and the European Union came in at 2.4%.