NZ consumer prices were up 0.9% in Q1, with annual inflation unchanged at 3.1% The result was stronger than expected with firm underlying inflation.
Consumers Price Index, March quarter 2026
Headline inflation
- Quarterly change: +0.9% (prev: +0.6%)
- Westpac forecast: +0.7%
- Market median: +0.8%, range +0.7% to. +1.1%
- Annual change: +3.1% (prev: +3.1%)
- Westpac forecast: +2.8%, RBNZ: +3.0%, Market: +2.9%
Non-tradables
- Quarterly change: +1.1% (prev: +0.6%)
- Westpac forecast: +0.8%
- Annual change: +3.5% (prev: +3.5%)
Tradables
- Quarterly change: +0.7% (prev: +0.7%)
- Westpac forecast: +0.2%
- Annual change: +2.5% (prev: +2.6%)
Consumer prices rose 0.9% in the March quarter. That saw the annual inflation rate remaining unchanged at 3.1%.
The March quarter inflation result was above the 0.7% rise we were expecting, with surprises spread across tradable and non-tradable categories.
The result was also above the RBNZ’s updated forecast from their April policy update for 3% annual inflation.
Importantly, many measures of core inflation have continued to run at levels close to or above the top of the target band. For the RBNZ, that highlights the firm starting point for inflation even before the recent oil price shock.
What contributed to inflation in the March quarter?
Underpinning the March quarter rise in consumer prices were large increases in some specific areas.
- Food prices were up 1.5% over the quarter, underpinned by the usual seasonal increases in the price of fruit, as well as higher prices for confectionary (especially chocolates).
- Unsurprisingly, the other big category that has boosted inflation this quarter were transport costs. The sharp rise in oil prices over the past few weeks has left petrol prices up 3.5% over the quarter, with diesel prices up 11%. Notably, we also saw the early stages of spillovers from high fuel prices into other costs, with domestic airfares up 9% over the quarter.
- In addition to those factors, the March quarter also saw continued increases in electricity charges and the annual increase in the tobacco excise tax. There has also been a big rise in vehicle registration costs and health care costs (the later related to the annual roll-over in the subscription subsidy).
On the downside, we saw a fall in overseas holiday accommodation costs (-4%) and international airfares (-7%). Both of those declines are seasonal, and in the case of international airfares, we are likely to see large increases over the coming months.
On the housing front, rents were flat over the quarter. That was the weakest result since 2001. It’s particularly notable as the start of the year typically sees many rental agreements rolling over and larger increases in rents. This softness comes against a backdrop of low population growth and increases in housing supply, with particularly weak growth in areas like Wellington. We expect housing rental growth will remain muted for some time.
The March quarter also saw a modest 0.5% rise in the cost of a newly built home. Construction cost inflation has been muted for some time. However, there is growing pressure on materials costs, and that’s likely to flow through to larger increases in building costs later in the year.
Annual and core inflation
The annual inflation rate was unchanged at 3.1% in the year to March.
Looking under the surface, prices in the domestically oriented non-tradables group rose 1.1% over the quarter (above expectations). That saw annual non-tradables inflation remaining unchanged at 3.5%.
Non-tradables inflation has been lingering above historic averages. In part, that’s due to the continued large increases in administered prices, like electricity charges which rose 12.5% 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 3.5% for the year (up from 3.4% at the end of last year). In seasonally adjusted terms, quarterly non-tradables inflation has been running at a rate 0.9% for most of the past year.
Tradables inflation was also hotter than expected in the March quarter (+0.7 qtr, +2.5% yr), with increases seen across a range of discretionary spending categories. That saw annual tradables inflation excluding food and fuel rising to 1.8% (up from 1.7% at the end of last year and the highest it’s been since September 2023).
And over the coming quarters, tradable price inflation is set to accelerate sharply. As well as increase global fuel and transport charges, supply chain disruptions are already pushing up the prices for many imported goods.
While the past quarter did see large moves in a few specific areas like food and fuel prices, these aren’t the only areas where we’ve seen firmness in inflation. Despite dropping back over the past year, key measures of core inflation remain in the upper part of the RBNZ’s target band, and several have taken a step higher. (Note: core inflation measures smooth through the quarter-to-quarter swings in inflation and track the underlying trend in prices).
In terms of specifics:
- CPI ex-fuel inflation: +3.2% yr (vs +3.2% previously)
- CPI ex-fuel and food: +3.0% yr (vs +2.9% previously)
- 30% trimmed mean: +2.3%yr (vs +2.5% previously)
- Weighted median +1.6%yr (vs 1.7% previously)
That resilience in core inflation will be important for the RBNZ, highlighting the firm starting point for inflation even before the recent oil price shock
Outlook
This quarter’s result was really just the curtain raiser. Both we and the RBNZ now expect inflation will rise to over 4% in the June quarter. We’ve recently updated our forecasts and had assumed annual inflation would peak at 4.3% in the June quarter, before dropping back to 3.9% by the end of this year. Today’s result suggests upside risk to those forecasts
The middle part of the year will see the full brunt of the recent rise in oil prices, as well as related increases in transport and other costs. There will also be a big focus the various survey gauges of forward cost and pricing pressures over the next few months, which will be closely watch for signs of a more enduring lift in inflation.
