Reserve Bank of New Zealand warns of persistent inflation amid Middle East oil shock

Reserve Bank of New Zealand chief economist Paul Conway said the oil‑price shock from the Middle East conflict could cause inflation expectations to become entrenched in New Zealand, potentially requiring additional interest‑rate hikes. He noted that firms are now more prone to pass on higher costs, raising the risk that a temporary shock becomes lasting inflation.

The central bank’s Monetary Policy Committee recently lifted the official cash rate by 25 basis points to 2.5%, the first increase in three years, after cutting rates by 325 basis points since August 2024. Inflation is running above the 1‑3 % target range, projected to peak at 3.9 % in the June 2026 quarter before easing toward the 2 % goal by 2027. Conway stressed that while medium‑term inflation expectations remain well anchored, policy may need to respond more firmly if price‑setting behaviour shifts.

The RBNZ expects to keep inflation within its 1‑3 % band and will monitor data, price‑setting dynamics, and economic activity to guide future monetary‑policy decisions.