Finance Minister Nicola Willis is labelling annual inflation hitting its highest level in more than two years a “Trump spike”.
“Donald Trump has certainly made things harder,” she said.
Oil prices surged to around US$120 a barrel during the quarter having been below US$70 prior to the conflict.
Despite oil falling back to around US$72 in June, a breakdown in the ceasefire between the US and Iran has seen prices climb again more than 10% in the past week.
“Unfortunately, I do expect to see that reflected at the pump,” Willis said. “We’re in a volatile environment.”
Other contributors to the annual CPI increase were:
- electricity – up 12% (8.4% contribution to the 4.1% annual inflation rate)
- local authority rates and payments – up 8.8% (6.7% contribution)
- construction of new housing – up 2.7% (6.4% contribution).
Economists had largely anticipated the rise June quarter inflation, although it is higher than the 3.9% forecast by the Reserve Bank.
Westpac senior economist Satish Ranchhod believed the reading wouldn’t come as a major surprise to the Reserve Bank, as the reading was largely higher due to volatile items like holiday accommodation.
“Overall, today’s result wasn’t as worrying as it could have been, with limited signs of widespread spillover from high oil prices. But inflation is still high,” Ranchhod said.
“We think that [Official Cash Rate or OCR] hikes are most likely at the Reserve Bank’s September and December policy meetings.”
ASB senior economist Mark Smith noted that inflation from the CPI, excluding food, fuels and energy, eased to 2.5% in in the second quarter.
“Annual CPI inflation, excluding government charges, food, energy and fuel (two-thirds of the CPI basket) modestly ticked up to 2%,” he said.
Westpac still expected the Reserve Bank to continue normalising the OCR from September in 25-basis-point clips per meeting, taking the OCR to 3.25% by the end of 2026.
“We are hoping that returning the OCR to broadly neutral levels will be sufficient to ensure that inflation settles at 2%.”
Westpac is forecasting the Reserve Bank to keep lifting the OCR from September to reach 3.25% by th end of the year.
Smith said the market reaction had been modest because the topline figure was close to expectations.
“The key two-year swap rate rose by 3 basis points to 3.72% on the back of the CPI release, while the New Zealand dollar reversed earlier weakness against the US dollar to trade about 15 basis points higher US58.50c,” he said.
“Against the Australian dollar, the Kiwi went from A83.40c to A83.60c on the news.”
Looking at how the CPI changed quarter-on-quarter, it was up 1.5% in the June 2026 quarter, compared with the March 2026 quarter.
Higher petrol prices were the largest contributor to the quarterly inflation rate, up 20.1%. Diesel prices also increased, up 47.7%.
“Together, petrol and diesel accounted for almost two-thirds of the 1.5% quarterly increase,” Stats NZ prices and deflators spokeswoman Nicola Growden said.
Excluding the effect of petrol and diesel, the CPI rose 0.5% in the June 2026 quarter.
Tradeable inflation measures final goods and services that are influenced by foreign markets.
Within the 4.9% increase in tradeable inflation in the 12 months to the June 2026 quarter, higher prices were recorded for:
- petrol, up 27.5% (46.4% contribution to the 4.9% rise for all groups tradeable)
- other vehicle fuels and lubricants, up 71% (15.1%) contribution to all groups tradeable).
Lower prices were recorded for:
- oils and fats, down 9.1% (-1.7% contribution to all groups tradeable)
- audio-visual equipment, down 18.4% (-1.4% contribution to all groups tradeable).
Non-tradeable inflation measures final goods and services that do not face foreign competition and is an indicator of domestic demand and supply conditions. However, the inputs of these goods and services can be influenced by foreign competition.
Within the 3.4% increase in non-tradeable inflation in the 12 months to the June 2026 quarter, higher prices were recorded for:
- electricity, up 12% (17% contribution to the 3.4% rise for all groups non-tradeable)
- local authority rates, up 8.8% (13.6% contribution to all groups non-tradeable).
Lower prices were recorded for:
- milk, cheese and eggs, down 9% (-1.7% contribution to all groups non-tradeable)
- real estate services, down 4.6% (-1.5% contribution to all groups non-tradeable).
Liam Dann is business editor-at-large for the New Zealand Herald . He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.
