First Impressions: NZ Consumers Price Index, Dec quarter 2025
Prices rose 0.6% over the December quarter, with the annual inflation rising to 3.1% (up from 3.0% previously). That was stronger than our forecast and above the RBNZ’s expectations.
Consumers Price Index, December quarter 2025 – key stats
Headline inflation
Quarterly change: +0.6% (prev: +1.0%)
Westpac forecast: +0.5%, RBNZ (Nov MPS): +0.2%
Market median: +0.5%, range +0.2% to. +0.6%
Annual change: +3.1% (prev: +3.0%)
Westpac forecast: +3.0%, RBNZ (Nov MPS): +2.7%, Market: +3.0%
Non-tradables
Quarterly change: +0.6% (prev: +1.1%)
Westpac forecast: +0.6%, RBNZ (Nov MPS): +0.4%
Annual change: +3.5% (prev: +3.5%)
Tradables
Quarterly change: +0.7% (prev: +0.8%)
Westpac forecast: +0.5%, RBNZ (Nov MPS): +0.1%
Annual change: +2.6% (prev: +2.2%)
Overview
Consumer prices rose 0.6% in the December quarter. That saw the annual inflation rate rising to 3.1% (up from 3.0% previously).
The December quarter inflation result was above the 0.5% rise we were expecting, with most of the surprise due to firmness in tradable prices, including the prices for furnishings and other durables. There was also a pick-up in building costs.
The result was higher than the 0.2% rise the RBNZ factored into their November MPS forecasts. For the RBNZ, some of that upside surprise was likely related to volatile prices for imported items like petrol and international airfares. However, domestic prices have also been running hotter than the RBNZ expected. It's likely that the firmness in durables prices was also a surprise to the RBNZ.
Importantly for the RBNZ, the earlier easing in core inflation has been arrested. Several core inflation measures picked up and are sitting in the upper part of the RBNZ target band.
What contributed to inflation in the December quarter?
Underpinning the December quarter rise in consumer prices were large increases in several areas.
December saw seasonal increases in the costs of international airfares (up 7%) and holiday accommodation.
There were also large increases in fuel prices, with petrol prices up 2.5% and other fuel prices up 3.7%.
Communications costs rose 4% related to the cost of both services and new mobile phone.
Notably, there were large increases in the prices for a range of durable household items, like furnishings.
Lastly, we saw construction costs posting a solid 0.6% rise - a stark turnaround from recent quarters with higher materials, labour and power costs all contributing.
Offsetting some of those increases was a 0.8% decline in food prices related to the seasonal fall in fresh vegetable prices.
We also saw continued softness housing rents. Rental growth has been very subdued through the December quarter, with a rise of just 0.2%. That’s the smallest December quarter increase since 2010. It comes against a backdrop of low population growth and increases in supply, with particularly weak growth in areas like Wellington.
There was also softness in the cost of insurance for dwellings, contents and vehicles (following large increases in recent years)
Annual and core inflation
Annual inflation rose to 3.1% in the December quarter, up from 3.0% in the year to September.
Looking under the surface, prices in the domestically oriented non-tradables group rose 0.6% over the quarter (as we expected, but above the RBNZ's forecast). Annual non-tradables inflation remained at 3.5%.
Non-tradables inflation has been cooling only gradually over the past year and is lingering above historic averages. In part, that’s due to the continued large increases in administered prices, like electricity charges which rose 12% over the past year. However, prices in other areas have also been firm. Non-tradables excluding housing and utilities costs (which also omits rates) was 3.4% for the year. In seasonally adjusted terms, quarterly non-tradables inflation has been running at a rate of 0.9% for most of the past year.
On the imported front, tradables prices rose by 0.7% over the December quarter (above our forecast and the RBNZ's assumption). That saw annual tradables inflation rising to 2.6% (from 2.2% previously).
Annual tradables inflation excluding food and fuel rose to 1.7% (up from 1.4% previously).
This quarter saw firmer than expected increases in discretionary spending areas, like furnishings and recreational equipment.
There has been a stark turn around in tradables inflation. Over the past year, lower prices for imported consumer goods were a significant contributor to the fall in overall inflation. However, tradable prices are no longer falling, with annual tradables inflation back at its highest level since 2023.
While we don’t expect high levels of tradables inflation going forward, we don’t expect that it will be the significant drag on overall inflation that it was in recent years.
Crucially, the stronger-than-expected December quarter inflation result wasn’t just due to a few specific prices. The various measures of core inflation, which smooth through the quarter-to-quarter swings in prices and instead track the underlying trend in inflation, were also firmer than expected.
The earlier decline in the various measures of core inflation has been arrested, with most measures lingering in the upper part of the RBNZ’s target band. Some closely watched measures such as the trimmed mean picked up this quarter.
That resilience in core inflation will be important for the RBNZ.
In terms of specifics:
• Inflation excluding food, fuel and energy costs remained unchanged at 2.5%.
• Inflation excluding fuel rose to 3.2% from 3.1%.
• Trimmed mean inflation rose to 2.7% from 2.4% previously.
Outlook
We continue to expect that inflation will drop back inside the RBNZ’s target band over the coming year.
However, with inflation cooling more gradually than the RBNZ had assumed and signs that activity has been picking up, the RBNZ’s easing cycle has come to an end. It’s likely the RBNZ will be bringing forward their forecasts of when the OCR will start to rise. But nevertheless, not to the extent where OCR increases in the first half of 2026 are on the cards. Our forecast of a December OCR increase look odds on at this stage, and market pricing for a hike in September looks understandable – although there is a lot of water to go under the bridge before then.
Media contact
Satish Ranchhod, Senior economist
+64 9 336 5668
+64 21 710 852
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