New Zealand Institute of Economic Research (Inc)
Media release, 1 September 2026
For immediate release
NZIER Quarterly Predictions, September 2026
The New Zealand economy is showing tentative signs of a gradual recovery as global fuel prices ease from the highs reached earlier this year. The partial reopening of the Strait of Hormuz, increased use of other export routes in the Middle East, and increased supply from other countries have reduced pressure on global crude oil prices, helping stabilise financial markets and ease some immediate inflation pressures from the fuel shock.
However, this recovery remains fragile. The latest NZIER Quarterly Survey of Business Opinion showed a modest improvement in business confidence, while recent manufacturing and services indicators point to some recovery in activity. But households and businesses remain cautious. Retail spending volumes fell in the June quarter as higher petrol and electricity prices crowded out discretionary spending, and the unemployment rate rose to 5.6 percent. Firms also remain cautious about hiring and investment, with uncertainty around the global outlook and the upcoming New Zealand general election likely to weigh on spending decisions over the remainder of 2026.
Annual CPI inflation increased from 3.1 percent in the March quarter to 4.1 percent in the June quarter, driven largely by the earlier surge in fuel and electricity prices. Encouragingly, underlying inflation pressures are more contained. Non-tradable inflation eased slightly, while CPI inflation excluding food, household energy and vehicle fuels was 2.5 percent. Inflation expectations have also eased as fuel prices have fallen.
Some evidence suggests that higher fuel costs are feeding through to broader business costs, particularly in construction, agriculture and transport. However, spare capacity in the labour market and subdued wage growth are limiting firms’ ability to pass these costs on to customers. We forecast annual CPI inflation to remain above the RBNZ’s target band for the rest of 2026, before easing in 2027 as the direct impact of higher fuel prices fades.
The Reserve Bank of New Zealand began its tightening cycle in July with a 25-basis-point OCR increase. Beyond our forecast follow-up hike in September, we forecast the RBNZ will continue raising the OCR towards more neutral levels as the economic recovery takes hold. Keeping monetary policy loose for too long as economic activity recovers would increase the risk that inflation pressures become more persistent. Pricing and cost indicators will be closely watched for signs that the earlier fuel shock is becoming embedded in broader price- and wage-setting behaviour.
Quarterly Predictions is an independent review of New Zealand’s economic outlook and includes comprehensive forecasts of the economy. The full publication is available exclusively to NZIER’s members.
For further information, please contact:
Christina Leung, Deputy Chief Executive (Auckland) & Head of Membership Services
christina.leung@nzier.org.nz, 021 992 985