Economy in the balance: NZ hopes for a ‘glad-flationary’ reversal of fortunes

Tuesday, 23 June 2026

Low angle view of a person lying relaxed in green grass looking up at a blue sky with white clouds on a sunny day.

Jarrod Kerr is the chief economist at Kiwibank.

OPINION: Last week was a good week, while it lasted. The US said it had struck a deal, and Iran claimed victory, which seemed like a win-win. The “deal” included a gargantuan fund, designed to keep Iranian leaders in line and to rebuild their country from the war.

For the US to claim a genuine win, the deal must address Iran’s enriched uranium within a 60-day window, and for the Iranians, keeping Israel on the sidelines is key. Israel is the wildcard here.

In the meantime, the war that was meant to cease last week continues to be ever-threatening. Talks of TACO (Trump Always Chickens Out) are silenced every day the S&P 500 hits new highs, and a deal on Iran’s enriched uranium fails to surface. And indeed, traders now talk of NACHO (Not a Chance Hormuz Opens). Both will be wrong, but the scene is one of continued conflict, for now.

Either way, financial markets loved the promise of a deal. Financial markets were already discounting the impacts of the war, with US equities riding the AI wave, or perhaps more correctly, tsunami. Volatility has been remarkably low, with rates stable, currencies well ordered, and equities pushing new highs. OIl nearly hit US$120 per barrel (p/b) in the early stages of the war, but never really looked like bursting to truly stressed levels ($150p/b or above).

Now, Brent Crude oil, the global benchmark, has dropped to $80p/b. And that means pump prices may be returning to more normal levels. Unless of course, current negotiations go further south than they have already (with a foul-mouthed rant from Trump and the Iranians seeking to leave talks).

The economic narrative, by comparison to financial markets, continues to be dominated by the dreaded concept of “stagflation”. Weak growth, high prices and high un(der) employment are rife.

Traders, economists, strategists - in fact, anyone with a keyboard - have debated the impact of inflation. It was this time last year when I wrote an article titled “‘Tell me where it hurts.’ ‘My back pocket’.” At the time, New Zealand was facing a re-acceleration in food prices, energy prices, council rates, insurance premiums, and many more frustratingly expensive costs.

Well, here we are, five years into this cost of living crisis. It’s frustrating businesses, unable to pass the costs on. And it’s frustrating households, forever battling with their budgets. The cost-of-living crisis was meant to end, again, this year. It hasn’t.

We are seeing demand destruction. In Asia and Africa, poorer nations are cutting back on their fuel consumption. They simply can’t afford it. But that’s freeing up fuel for developed economies. They can afford it. That is leading to a “haves and have nots” situation globally.

But the same thing is happening to Aotearoa, and our economy is feeling it. Poorer families are making hard sacrifices, while wealthy families grimace and bear it.

To make matters worse, the RBNZ is leaning into the inflationary threat, at the expense of the economic recovery.

Is the only way up? There are some factors that might counter the direction things are moving in, causing something we could call a “Glad-flationary” reversal. If oil falls a little further, back to the low $70p/b, the price we pay at the pump will have been fully reversed. Progress has been made in the Middle East, despite the back-and-forth. And we remain in the camp of peace, with a deal being done.

We also need to give thanks for being spared a journey down into the hell of actual supply shortages, and a world that looked more like a scene from Mad Max. For what we did manage to retain, and the plans we did manage to make, we must recognise the efforts of MBIE, which kept the country calm and carrying on as worse-case scenarios played out.

Those worse-case scenarios have always been on our minds, in the realm of possibilities, but some of the worst possibilities have been whittled down - ceasefires, no matter who fragile, do that.

It’s still a bit too early to claim an end to the bad times, but we may dream. There are likely blue skies on the horizon, as we make our way through the storm.