BNY’s Bob Savage notes that New Zealand’s Consumer Price Index (CPI) accelerated to 0.9% q/q, keeping annual inflation at 3.1%, with strong non-tradeable components such as electricity and local authority rates. The NZIER (New Zealand Institute of Economic Research) survey shows a sharp drop in business confidence as geopolitical tensions lift fuel costs. The report indicates expectations for the Reserve Bank of New Zealand (RBNZ) to start tightening with a 25 bp OCR (Official Cash Rate) hike in July.

Inflation persistence and RBNZ tightening risk

"New Zealand’s Consumer Price Index (CPI) rose 0.9% q/q and 3.1% y/y in Q1 vs. 0.6% q/q, 3.1% in Q4 2025. Key q/q price increases included petrol (+3.5%), pharmaceuticals (+17.7%) and confectionery (+6.2%), while international air transport (-7.0%) and prepaid overseas accommodation (-4.0%) declined."

"Non-tradeable inflation rose 1.1% q/q 3.5% y/y (Q4 25: 0.7% q/q, 3.5% y/y), driven by electricity (+12.5%) and local authority rates (+8.8%). NZX 50 +0.13% to 12932, NZDUSD +0.477% to 0.5908, 10y NZGB +2.6bp to 4.617%."

"New Zealand’s NZIER Quarterly Survey of Business Opinion for Q1 showed a sharp decline in business confidence, with only a net 1% of firms expecting improved economic conditions, down from 39% in Q4 2025. The U.S.-Israeli war with Iran and resulting shipping restrictions in the Strait of Hormuz have disrupted supply chains and caused fuel prices to surge, increasing caution among firms."

"Cost pressures are persisting, but inflation risks are currently contained. The RBNZ is expected to start tightening monetary policy with a 25bp OCR hike in July."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)