Interest rate declines kept NZ household cost increases below headline inflation
The cost of living for the average New Zealand household rose 2.1% in the 12 months to the March 2026 quarter, well below the country’s overall inflation rate, driven largely by a record fall in interest payments, according to Stats NZ.
The household living-cost price indexes (HLPIs), which track how inflation affects different household groups, recorded a slight dip from the 2.2% increase posted in the December 2025 quarter. By comparison, the consumer price index (CPI), which measures inflation across the broader economy, was 3.1% in the 12 months to the March 2026 quarter, following an increase of 3.1% in the 12 months to the December quarter.
Prices and deflators spokesperson Nicola Growden attributed the gap between the two measures to falling borrowing costs.
“Falling interest payments for households was the main reason for the lower increase in the cost of living compared to New Zealand’s overall inflation rate,” Growden said.
Interest payments fell nearly 20% for the average household over the past year – the largest annual decline recorded since the series began 18 years ago.
Mortgage interest payments dropped 20.9%, benefiting the highest-spending households the most and leaving them with the lowest annual inflation rate of all household groups at just 0.7%. Because these households devote a greater share of their spending to mortgage interest, falling rates provided them with the most relief.
Superannuitant households, which are more likely to own their homes outright, saw comparatively less benefit from declining mortgage costs, Stats NZ noted.
On a quarterly basis, the HLPI rose 0.8% in the March 2026 quarter compared with the December 2025 quarter. Petrol, pharmaceutical products, and electricity were the three main drivers.
Petrol prices rose 3.5% in the quarter, with the impact falling most heavily on lower-spending households. “Some lower-spending households allocate nearly 5% of their spending on petrol, whereas the average household spends less than 4%, and (the) highest-spending households less than 3%,” Growden said.
Pharmaceutical products jumped 17.7%, largely due to the prescription subsidy scheme’s annual reset on 1 Feb. 2026, which meant households that had exceeded the 20-prescription threshold were again required to pay the co-payment. Electricity rose 2.6% for the quarter.
Offsetting those increases, mortgage interest payments fell 4.8%, while international airfares and overseas accommodation also declined, Stats NZ noted. “International travel became less expensive for the average household over the March 2026 quarter,” Growden said.
