Uncomfortable reading for the RBNZ, Luxon and everyday Kiwis – Editorial
THE FACTS
- The annual inflation rate rose to 3.1%, exceeding the Reserve Bank’s target band.
- Housing, utilities, meat, poultry and international air transport were major contributors to the increase.
- Economists predict the Reserve Bank’s easing cycle has ended, with potential OCR rises in 2026.
Back up we go.
The annual inflation rate for 2025 was 3.1%, we learned this week. This was up from 3% for the year to September, the latest Consumers Price Index data showed.
ANZ chief economist Sharon Zollner described the result as “uncomfortable reading” for the Reserve Bank. It puts the inflation rate outside the target band of 1 to 3% and significantly higher than the RBNZ’s November pick of 2.7%.
It is also uncomfortable reading for everyday Kiwis.
In the 12 months to the December 2025 quarter, the largest contributors to Consumers Price Index inflation were the housing and household utilities group, which includes rates and power, Stats NZ said.
Other significant contributors included meat and poultry, while higher prices for international air transport were the largest contributor to the quarterly inflation rate, up 7.2%.
After a rough few years of high living costs and eye-watering mortgage bills, many New Zealanders may have pencilled in 2026 as a year to start the recovery.
We saw this with homeowners trying to pick the low point in this interest rate cycle, thinking this year they’d cash in on even lower rates – it now looks like they’ve missed it.
There was an abnormally high 49% of new mortgage lending done in November went on floating rates, RBNZ data shows.
The Reserve Bank cut the Official Cash Rate (OCR) by 25 basis points to 2.25% on November 26 but, in the following weeks, banks started lifting their longer-term mortgage rates.
New Zealand Financial Services Group and Loan Market chief executive Bruce Patten said “it was nuts” as borrowers have scrambled to try to lock in fixed rates.
Westpac senior economist Satish Ranchhod said yesterday’s inflation lift will mean the RBNZ’s easing cycle has come to an end. It is also likely the RBNZ will be bringing forward its forecasts of when the OCR will start to rise. Some economists have already predicted this will be in the second half of 2026.
Prime Minister Christopher Luxon was certainly one who was hoping 2026 would be the year of lower rates and an economic recovery. His re-election chances are increased significantly if New Zealanders, particularly those with mortgages, had a bit more cash in their back pockets this year.
Earlier in the week, in his state of the nation speech, Luxon said: “I feel more confident than ever that the recovery has arrived.”
He said it had been a “tough time for Kiwi households and businesses over the last five years”, but insisted the country was turning a corner.
A disgruntled electorate that feels like they’re going financially backwards has never historically bode well for an incumbent government.
After yesterday’s elevated inflation rate, New Zealanders will be feeling a little less confident.