Q2 CPI print looms as US-Iran conflict pushes fuel costs and mortgage rates higher
Following July's 25-basis-point OCR hike to 2.5%, the first in three years, advisers and their clients are facing a rates environment set to tighten further as New Zealand's Q2 Consumers Price Index — due for release tomorrow — is expected to show New Zealand inflation jumping to around 4%, its highest level since early 2024.
Markets are already pricing in further RBNZ rate hikes at the September and December meetings, with Westpac forecasting the OCR reaching 3.75% within a year. Fixed mortgage rates between two and five years now sit above 5%, and Westpac suggests locking in longer terms may still suit borrowers seeking insulation from further rises.
The inflation spike itself is being driven by a re-escalation of conflict between the US and Iran, which has pushed fuel prices sharply higher.
ASB senior economist Kim Mundy noted the shift in tone last week, writing of "a real sense of déjà vu last week, and not the good kind."
Estimates for the exact CPI figure vary slightly across the banks, with Westpac picking 4.1% and both ASB and Kiwibank forecasting 4% — all above the Reserve Bank's 1–3% target band.
Why banks aren't panicking
Despite the headline number, ASB and Kiwibank are both cautioning clients against reading too much into it: petrol and diesel increases are expected to directly account for roughly three-quarters of the quarterly CPI rise, with core inflation remaining comparatively contained.
In other words, the spike largely reflects the oil price surge seen in April and May rather than a genuine strengthening of underlying demand.
Business pricing intentions add to the risk
That said, the more telling signal for advisers may not be the CPI print itself but business pricing behaviour. As Kiwibank put it, in a piece headlined "Businesses at the end of their tether poised to raise prices," a net 51.9% of firms now plan to raise prices in the next three months, up sharply from 25% at the end of 2025.
Westpac reported a similar trend, with a net 41% of firms having already lifted prices in the June quarter and a net 54% intending to do so in the September quarter — the highest reading since March 2023.
That risk is already shaping monetary policy settings: RBNZ chief economist Paul Conway has flagged this pricing behaviour as a key concern, warning that businesses tend to pass through cost increases more readily than they reverse them when costs fall, raising the danger that what should be a temporary fuel-driven shock becomes embedded in longer-term inflation expectations.
Household caution persists
Elsewhere, household caution is evident: electronic card spending fell 1.4% in June, the housing market remained soft with REINZ prices down 0.8% annually, and net migration continues to trend lower. For property investors and first-home buyers alike, this points to constrained borrowing capacity and a subdued near-term housing outlook, even as the RBNZ pushes ahead with normalising interest rates.
For more insights, read the Westpac, ASB, and Kiwibank reports.
Stay informed with the latest housing market trends and mortgage insights — subscribe to our free daily newsletter.
