New Zealand Institute of Economic Research (Inc)
Media release, 3 June 2026
For immediate release
NZIER Quarterly Predictions, June 2026
The New Zealand economy had been showing signs of recovery in early 2026, but the global fuel crisis sparked by the US-Israel-Iran war has thrown this recovery off track. Higher fuel prices are pushing up inflation and weighing on household and business confidence, increasing caution around spending, hiring and investment. The latest NZIER Quarterly Survey of Business Opinion showed a marked deterioration in business confidence as the fuel crisis escalated.
Lower interest rates had supported a lift in demand across parts of the economy, including retail spending, housing, and business investment, over the latter half of 2025 and early 2026. However, higher fuel prices and escalating geopolitical conflict are now creating major headwinds. Weak demand remains the primary constraint for firms, limiting their ability to pass on higher costs.
Higher fuel prices to push annual inflation above 4 percent
Annual CPI inflation remained above the Reserve Bank of New Zealand’s 1 to 3 percent target band at 3.1 percent in the March quarter. The recent surge in petrol and diesel prices means annual CPI inflation is expected to rise to well above 4 percent in the June quarter.
The key uncertainty is how long the fuel crisis persists and whether higher fuel costs spill over into broader price- and wage-setting behaviour. For now, core inflation measures and medium-term inflation expectations suggest underlying inflation pressures remain contained. Spare capacity in the economy is also limiting firms’ ability to lift prices.
However, the risk remains that a temporary fuel shock becomes more persistent if businesses and households start to expect higher inflation to continue. NZIER expects annual CPI inflation to ease back within the RBNZ’s target band by mid-2027, based on the assumption that the conflict is resolved by the end of this year.
We expect the RBNZ to commence the tightening cycle in July
The fuel crisis presents the RBNZ with a difficult balancing act. Higher fuel prices are pushing up inflation, while weaker demand and heightened uncertainty are weighing on growth.
The RBNZ has indicated its primary concern is minimising the risk that higher fuel prices spill over into broader inflation expectations and wage-price-setting behaviour. The May Monetary Policy Statement reinforced NZIER’s expectation that an OCR increase is imminent.
We forecast the RBNZ will raise the Official Cash Rate by 25 basis points at its July meeting, followed by another OCR hike in September.
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
