First Impressions: NZ Consumers Price Index Q3 2026 and change of OCR call
Consumer prices rose 0.7% in the September quarter and 3.7% y/y. Core inflation pressures are elevated and market pricing is primed for a 25bp OCR hike next week, which we now expect.
Consumers Price Index, September quarter 2026 – key stats
Headline inflation
Quarterly change: +0.7% (prev: +1.5%)
Westpac forecast: +0.7%
RBNZ: +0.8%
Market median: +0.8%, range +0.5% to +1.2%
Annual change: +3.7% (prev: +4.1%)
Westpac forecast: +3.7%, RBNZ: +3.9%, Market: +3.8%
Non-tradables
Quarterly change: +1.0% (prev: +0.6%)
Westpac forecast: +1.3%
Annual change: +3.3% (prev: +3.4%)
Tradables
Quarterly change: +0.2% (prev: +2.7%)
Westpac forecast: -0.2%
Annual change: +4.3% (prev: +4.9%)
Consumer prices rose 0.7% in the September quarter. That saw the annual inflation rate easing to 3.7%, down from 4.1% in the year to June.
Today’s result was in line with our forecast, but lower than the RBNZ’s forecast for 3.9% annual inflation.
However, under the surface, the details were more concerning. Measure of core inflation have taken a step higher, with several closely watched measures now at or slightly above the top of the RBNZ’s target band.
We suspect that today’s result will leave the market continuing to price a strong chance of another OCR hike at next Wednesday’s policy review. In that light, we think the RBNZ will regard this as the path of least resistance, and we now expect that they will deliver (previously we expected that they would pause and assess, before hiking at the December MPS).
What contributed to inflation in the September quarter?
Underpinning September’s 0.7% rise in consumer prices were some big price movements in both directions.
The largest move in prices this quarter was actually a sharp fall in fuel costs. Fuel prices aren’t low by any stretch of the imagination. However, average prices for both petrol and diesel over the September quarter were lower than in the June quarter when prices rocketed higher in the wake of the Middle East conflict. In terms of specifics, the average price for 91 unleaded was 6.5% lower in September than in the June quarter, while diesel prices were close to 16% lower. Those moves took 0.4ppts off inflation this quarter.
While prices at the pump weren’t as high as they were in the June quarter, fuel costs are still painfully high. And that’s been bleeding through into higher prices for other goods and services. Of note, the September quarter saw large increases in passenger transport costs, with international airfares up 14% and domestic airfares up nearly 8%.
The September quarter also saw the annual increases in local council rates (up 6.2%) and charges for services like water supply (up 7.5%). That continues the run of large increases seen in recent years.
Lastly, the past few months saw a 1.0% rise in food prices, largely as a result of the seasonal rise in prices for fresh vegetables.
On the downside, we’ve seen continued softness in housing rents, which are the largest component of the CPI, accounting for 10% of the basket. With low population growth and ample supply, rents were flat in the September quarter and have effectively been flat since the start of this year. In annual terms, rental inflation is the lowest it’s been in more than two decades, with regions like Wellington seeing outright falls.
Annual and core inflation
The annual inflation rate dropped back to 3.7% in the September quarter, down from 4.1% in the year to June and the highest level in two years.
Looking under the surface, prices in the domestically oriented non-tradables group rose 1.0% over the quarter, less than expected. That saw annual non-tradables inflation nudging down to 3.3% (from 3.4% in the year to June).
Non-tradables inflation has continued to run at above-average rates over the past year. That’s despite the softness in economic growth and the labour market. In large part, that’s due to the continued sizeable increases in administered prices, such as electricity charges which rose 11% over the past year.
However, prices in other areas have also been firm. Non-tradables excluding housing and utilities costs (which also omits local council rates) was 3.4% for the year. In seasonally adjusted terms, quarterly non-tradables inflation has been tracking around 0.8% for most of the past year. It was noted that in sectors like construction, higher materials costs are adding to prices. Feedback from business we've heard indicates that those higher materials costs are likely related to high oil prices.
On the imported front, lower fuel costs saw tradable prices rising by just 0.2% over the September quarter (though above our forecast for a small fall). That saw annual tradables inflation dropping back to 4.3%, down sharply from the 4.9% rise in the year to June.
While fuel costs have been a key driver for tradables inflation, under the surface, other imported inflation pressures are looking firm. Excluding food and fuel costs, tradables prices were up 2.7% over the past year. That’s the highest level in three years.
With big swings in fuel costs, and concern that this is spilling over into operating costs more generally, a key focus for the RBNZ is what’s been happening to measures of core inflation (which smooth through quarter-to-quarter swings in individual prices and instead track the underlying trend in inflation).
On this front we did some see worrying signs. Several closely watched measures of core inflation have picked up, and now sit at the top of (or slightly above) the RBNZ target band. In terms of specifics, we saw:
- CPI ex-fuel inflation: +3.0% yr (vs +2.9% previously)
- CPI ex-fuel and food: 3.2% yr (vs +2.9% previously)
- CPI ex-fuel, food and household energy: +2.9% yr (vs +2.5% previously)
- 30% trimmed mean: +3.0% (vs +2.6% previously)
- Weighted median: +3.1% (vs +2.7% previously)
Reinforcing this picture of firm underlying inflation pressures, a growing number of goods have been increasing in price. That could be an early indication that businesses, even those with a limited exposure to fuel costs, are starting to factor in expectations of continued high inflation when setting prices.
Outlook
While today’s result was lower than the RBNZ assumed in their September MPS projections, the firmness in core inflation will give the RBNZ pause for thought ahead of their policy review on 28 October. Furthermore, with a sharp rise in petrol prices in recent weeks, September’s easing in annual inflation is likely to be just a temporary reprieve. We expect headline inflation to reaccelerate back over 4% before the end of this year, and it’s set to remain above the RBNZ’s current forecast for most of 2027.
Market pricing and views have coalesced around an October hike which we now suspect the MPC will see as the path of least resistance. Core inflation measures are now close to or above 3%, which will add fuel to arguments from the MPC hawks. We will have more detail in our MPR Preview later today, including on the implications for the shape of the tightening cycle moving forward.
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