Prices are back, but that doesn’t mean Labour wins

Saturday, 13 June 2026

Luke Malpass is politics, business and economics editor.

OPINION: The election is now less than five months away.

Between now and polling day there are three Reserve Bank official cash rate decisions: in July, September and October. They are increasingly likely to result in higher interest rates.

During the same period, fuel prices are also expected to rise if the Strait of Hormuz does not reopen in a way that is trusted by ship owners, crews and insurers.

Markets still seem to be hanging on Donald Trump's announcements and oil futures continue to imply lower prices ahead. But physical reality and theoretical bets on future supply will eventually converge. If the strait remains closed, price will determine who needs fuel most and who is willing or able to pay for it.

Higher interest rates. Higher petrol prices. Higher inflation.

Sound familiar? These were three things the coalition Government and National Party campaigned on throughout 2022 and 2023.

Now they are back.

In the Government's favour, most people understand that Trump bears significant responsibility for higher fuel prices. The question is the extent to which he is also blamed for rising inflation and interest rates more generally.

If history is any guide, governments often end up carrying the can for events outside their control.

Interest rates, in particular, could prove challenging politically. Christopher Luxon has effectively taken a victory lap every time rates have fallen, using them as evidence of superior economic management. It has become part of the broader claim that his Government has had to relearn and reapply the economic lessons of the past 30 years.

But inflation can rise for many reasons. A major external supply shock is one of them.

There will be plenty of footage around of Luxon celebrating falling rates. And although most of the expected Reserve Bank increases will not flow through to mortgage payments before the election, people will know what is coming in the months ahead.

It was always a mistake to claim too much credit for the falls when rises were always likely to follow. Especially when the Reserve Bank itself was signalling that monetary policy remained accommodative. As recently as February, just before the war with Iran, the bank said: “If the economy evolves as expected, monetary policy is likely to remain accommodative for some time.”

In other words, rates were always going to rise eventually. The only question was when: most likely when the economy began heating up again.

I wrote almost a year ago that fixing the cost of living was never really in the Government’s gift. It was largely in the Reserve Bank’s. Becoming too closely identified with the direction of interest rates was always going to carry risks.

Any such problems may, however, be offset by Labour's moves over the coming months.

The coalition has been quite successful in branding Labour as spendthrifts, particularly because of Labour’s previous term in office when non-Covid spending – sometimes dressed up as Covid spending – became difficult to justify.

This week Labour unveiled a reasonably smart public transport package: weekly fare caps of $20 in the main centres and $10 in regional areas.

Labour says it would cost $69 million. That estimate is almost certainly too low, not least because lower prices are likely to encourage more people onto public transport. But the overall cost is not large, and Labour says it would be funded from the National Land Transport Fund, which is itself funded through petrol taxes and road user charges.

National, ACT and others quickly accused Labour of borrowing to fund another spending promise.

But that is, of course, exactly what the current Government is doing. There is no surplus. Any additional spending, even if reprioritised, ultimately sits within a fiscal position that still requires borrowing.

For Labour, the policy hits several sweet spots. It is modest and, crucially given the times, it is not free. It is a cap.

Relative to the size of the Government's budget, or even total spending on public transport, it is little more than a rounding error.

It would also apply to far more people than the Government’s fuel-related cost-of-living assistance announced earlier this year, which was tightly targeted and worth up to $50 a week for eligible households.

As I wrote on Wednesday, Labour is focused on the suburbs.

But Labour will need to do considerably more if it wants to win the next election.

It cannot simply drift along, hope the Prime Minister's popularity falls further, and float back into office. Chris Hipkins will need to take some genuine political risks if Labour wants to persuade National voters to switch sides.

In another phase of the political cycle, that might have been achieved through middle-class welfare, tax cuts or some newly subsidised service. But given the economic constraints and a Government that has successfully defined the terms of the fiscal debate, those options appear less promising.

Labour needs to reach beyond that and come up with something that is genuinely attractive to persuadable voters. Small public transport changes alone will not achieve it.

The unveiling of Labour's list earlier this week was an important step towards rebuilding for power.

While the party performed reasonably well in bringing through new talent, it also retained a number of familiar faces who probably should have been moved further down the rankings or gently shown the exit.

Governments often last nine years for many reasons, but one is that oppositions go through stages of grief. It frequently takes two election cycles to refresh personnel, update thinking and build a caucus that better reflects the political mood of the day.

Winning after just one term in opposition usually requires either a major external shock, deeply unpopular government decisions, or both.

Labour’s Black Budget in 1958, which sharply increased taxes on alcohol, cigarettes and petrol, helped sink the National government. So too did the OPEC oil shocks of the 1970s. In both cases, governments were wrestling with extremely difficult economic circumstances.

It is not yet clear that Labour's list was bold enough to take advantage of a similar moment.

Prices will be the backdrop to this election campaign.

But they are unlikely to be what ultimately decides it.