NZ inflation outlook revised upward as food and power costs bite

Westpac raises inflation forecast as food, electricity costs rise; ASB expects inflation to linger near 3%

NZ inflation outlook revised upward as food and power costs bite

Inflation pressures are mounting again in New Zealand, with Westpac and ASB economists pointing to higher food and electricity costs as key drivers.

New data from Stats NZ has prompted Westpac to revise up its Q2 CPI forecast, while ASB warns price growth may linger near 3% through 2025.

Westpac revises up Q2 inflation forecast

Westpac has lifted its Q2 2025 inflation forecast to 0.6%, up from 0.4%, on the back of firmer food and energy prices. That would push the annual inflation rate to 2.8%, up from 2.5% in March.

“We’ve revised up our forecast for Q2 CPI to 0.6% (from 0.4% previously),” said Satish Ranchhod (pictured left), senior economist at Westpac NZ.

“May saw continued firmness in food prices. Coming on top of the large increases in April, that’s the main driver of the revision to our forecast.”

Westpac’s updated view is slightly above the Reserve Bank’s 0.5% assumption published in the May Monetary Policy Statement.

Food and power drive price increases

According to Stats NZ’s May Selected Prices report – covering over 45% of the CPI – food prices rose 0.5% over the month following a 0.8% increase in April. Vegetable, meat, and dairy prices climbed, with butter up 13.5% in May and 51% over the year.

Electricity prices also jumped 2.3% for the second straight month.

“There were some areas of softness,” Ranchhod said. “Most notably, household rents... were up only 0.1% over the month. The last time we saw a May increase in rents this low was in 2010.”

Airfares also fell due to seasonal effects, further limiting inflation in some areas.

Tradables inflation rebounds

Ranchhod noted that while non-tradables inflation is easing gradually, tradables inflation has firmed due to stronger global food prices.

“Although rents and the more interest rate sensitive parts of the domestic economy have cooled, we’re continuing to see strong increases in regulated prices like household energy,” he said.

“Notably the high food prices, which are boosting agricultural incomes, are also being felt at the checkout. That’s pushing tradables inflation back to firm rates after last year’s falls.”

Westpac now sees inflation rising back to the top of the RBNZ’s 1-3% target band by year-end.

ASB flags lingering price pressures

Mark Smith (pictured right), ASB senior economist, estimated CPI inflation held steady at 2.6% in May, with monthly prices falling 0.6% due to lower fuel, airfare, and domestic accommodation prices.

“Annual dwelling rental inflation fell to a decade low,” Smith said. “Underlying price pressures remain evident in a number of pockets.”

“Annual food prices are still rising with 5%+ annual food price inflation now evident for most major food groups stretching household budgets.”

Despite this, ASB maintains its view that inflation will remain near the top of the target range for much of 2025.

Smith warned global oil prices, which have surged 15% this month, could lift Q3 inflation above the bank’s current 2.8% forecast.

Consumer relief on coffee, chocolate, and chips

There was a bright spot for consumers.

“Coffee prices were down 4% this month and chocolate prices were down 3%,” Ranchhod said. “We also saw a 1% fall in the price of potato chips. Happy snacking!”

See the Westpac and ASB insights.