New Zealand inflation cools to 3.7%, but a rate hike is still expected

What got pricier. Petrol added the most, up 19.1% on the year. Without it, inflation would have been 3.2%. Building new homes cost 3.2% more, electricity 9.3%, international airfares 12.5% and local council rates 6.2%. More than 85% of the basket rose in price.

The quarter. Petrol fell 6.5% over three months after jumping 20.1% the quarter before. International airfares rose 14.3%, the most since late 2022. Stats NZ says pricier flights to Europe and Asia drove it.

What next for rates. The central bank has already raised its cash rate twice this year, to 2.75%. It had forecast 3.9% inflation, so the data came in a little better. But Westpac economist Satish Ranchhod says firm core inflation will give the bank pause. Non-tradeable inflation, which depends less on imports, was 3.3% versus 3.4% the quarter before.

Forecasts. ASB Bank expects inflation to climb to 4.5% by year end as fuel gets pricier again. Markets fully price 0.5 percentage points of hikes in total by the end of February.

Confirmed facts

• New Zealand consumer prices rose 3.7% in the 12 months to the September 2026 quarter, after 4.1% to the June quarter.^[1][2]
• Prices rose 0.7% in the quarter.^[1][2]
• Economists polled by Reuters expected 3.8% annual and 0.8% quarterly; the central bank had forecast 3.9%.^[2]
• The Reserve Bank of New Zealand targets annual inflation of 1% to 3%.^[1][2]
• Petrol rose 19.1% on the year and was the largest contributor; without it CPI would have risen 3.2%.^[1]
• New housing construction rose 3.2%, electricity 9.3%, international airfares 12.5% and local authority rates 6.2%.^[1]
• In the quarter petrol fell 6.5% after rising 20.1%, and international airfares rose 14.3%, the most since the December 2022 quarter.^[1]
• More than 85% of the basket rose in price.^[1]
• Non-tradeable inflation was 3.3% versus 3.4%; tradeable inflation was 4.3%.^[2]
• The central bank has raised the cash rate twice this year to 2.75%; markets price a 98% chance of a hike next week.^[2]
• The New Zealand dollar dipped to $0.5692 after the data.^[2]
• The general election is on 7 November.^[2]
• ASB Bank expects inflation of 4.5% by the end of the year.^[2]

Implications

• ConfirmedNew Zealand inflation is slowing but stays above the central bank's target.
• Our readingA hike next week looks all but certain, and this data does not change that.
• Our readingAs long as fuel stays expensive, central banks in many countries will keep rates high.

Still unknown

• How big the hike will be and what the bank signals next.
• Where fuel prices go in the fourth quarter.
• How the 7 November election result shapes economic policy.

Who it affects

New Zealand, Asia-Pacific. Anyone trading the New Zealand or Australian dollar, or watching rates and inflation

Sources

1. Stats NZ: Annual inflation at 3.7 percent in September 2026 October 21, 2026 · official
2. Reuters (via Yahoo Finance): New Zealand third-quarter inflation slows to 3.7% but expectations remain of a hike next week October 21, 2026 · media