Inflation in New Zealand is expected to accelerate this year, driven by a weaker currency and rising oil prices, according to ANZ Bank New Zealand. These factors are projected to increase the cost of imported goods, prompting economists to adjust their outlook.
ANZ forecasts headline inflation to climb to 2.7% in the second half of 2025, up from 2.2% in the final quarter of 2024. The bank’s latest estimate surpasses its previous prediction of a 2.3% peak for the year.
The New Zealand dollar has declined 5.6% against the US dollar over the past three months, marking the worst performance among G-10 currencies. This depreciation, coupled with rising oil prices, is pressuring tradable inflation — a category that includes imported goods. Recent data revealed that tradables prices rose 0.3% in the fourth quarter of 2024, the first increase in five quarters.
Sharon Zollner, ANZ’s chief economist, cautioned that the acceleration in tradable inflation could influence long-term inflation expectations. “Should reaccelerating headline inflation over coming quarters cause medium-term inflation expectations to rise and become anchored above 2%, the RBNZ will become very concerned about the possibility of that flowing through into broader price-setting behaviour,” she said.
The Reserve Bank of New Zealand (RBNZ), which targets an inflation range of 1% to 3%, is expected to cut its official cash rate by 50 basis points to 3.75% at its next review in February. While many economists anticipate further reductions toward a neutral level of 3%, ANZ predicts the central bank will be more cautious, limiting cuts to 3.5% by the end of the year.
Zollner noted that policymakers are likely to “look through” rising inflation if it stems primarily from tradable components, especially given a recent decline in non-tradables or domestic prices. However, ANZ emphasized that persistently high tradable inflation could hinder further monetary easing.
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