Inflation tipped to near 4% as economists warn of fresh price shocks
Monday, 20 July 2026
Economists expect Stats NZ will confirm on Tuesday that inflation has risen to about 4%.
While the Reserve Bank believes the rise is likely to prove temporary, BNZ research head Stephen Toplis warned the economy was threatened by four possible supply shocks, each of which had the potential to further push up prices by the end of the year.
Currently causing most concern is the resumption of hostilities in the Middle East and the renewed closure of the Strait of Hormuz, which has pushed the price of Brent crude oil back above US$85 barrel.
Toplis said, in addition to that, food prices could be affected both directly and indirectly by a record El Niño that threatens to impact agricultural production both here and overseas from November.
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“The third one, which people aren't talking about at all, is the apparent shortage of memory for computers and rapidly rising computer prices,” Toplis said.
“Last but not least, if we get a bad case of bird flu, then our egg prices and our chicken prices are going to be up.”
Describing all four possible shocks as worries might be a little bit over the top, he said.
“It's just there's a lot of things that we're watching that could completely mess up our respective forecasts.”
Capital Economics chief economist Neil Shearing said the global economy had so far weathered the energy shock.
But he warned oil stocks had fallen “close to critically low levels” as a result of the drawdown of inventories since the Iran conflict began in February.
“The oil market therefore has much less capacity to absorb another supply shock,” he said.
“A prolonged closure of the Strait of Hormuz would probably trigger another surge in oil prices, pushing inflation in most developed markets to at least 5%, slowing US GDP growth towards 1%, bringing the Euro-zone close to recession, and prompting major central banks to raise interest rates.”
ANZ and ASB are forecasting Stats NZ will report annual inflation hit 4% in the three months to the end of June, while BNZ and Westpac are tipping it climbed to 4.1%.
The Reserve Bank updated its forecast when it released its monetary policy review last week and is slightly more optimistic, predicting inflation rose to 3.9%, from its last-recorded level of 3.1% in the first three months of the year.
Stats NZ provides an increasing amount of pricing data on a monthly basis, meaning economists’ inflation forecasts now tend to be highly accurate.
Toplis agreed it would be a major surprise if inflation didn’t fall somewhere within the consensus band of 3.9% to 4.2%.
He advised against attaching too much importance to the exact figure, but said the 4% threshold carried some psychological importance.
“It's very clear that inflation expectations are influenced by headline inflation and if that has got a ‘four’ in front of it rather than a ‘three’, that might garner a little bit more attention.”
The Reserve Bank is not scheduled to meet again to reset the OCR until September 2, by which time more information is likely to be available on the oil supply and climate outlook and inflation expectations.
Currently, many forecasters expect the bank will raise the OCR by a further 25 basis points to 2.75% at that meeting.
ANZ senior economist Miles Workman said the central bank was not being kept awake at night by the direct impact of higher fuel prices on headline inflation.
“Rather, it is the risk that the cost shock spills over into other parts of the consumer price index, lifting inflation expectations and generating a broader inflation impulse that could prove difficult to contain.”
Before the resumption of hostilities in the Middle East, the Reserve Bank had been expecting inflation to drop back to 3.3% in the current quarter, ending September 30.
ASB senior economist Mark Smith said the “re-escalation” of tensions pointed to a slower deceleration in headline inflation this year and a lower likelihood of inflation falling below 2% next year.
“We have nudged up our 2027 inflation forecasts accordingly,” he said.