The latest Consumer Price Index (CPI) data for New Zealand, released on October 19, 2025, reveals a monthly inflation rate of 1.00%, exceeding market expectations of 0.80% and doubling the prior month’s 0.50% increase. This print marks a notable acceleration in price pressures, though the annual inflation rate remains elevated but shows signs of moderation compared to earlier in 2025.

Drivers this month

• Shelter costs contributed approximately 0.35 percentage points (pp) to the monthly CPI increase, reflecting ongoing housing supply shortages and rental market tightness.
• Food prices rose 0.25 pp, driven by supply chain disruptions and higher global commodity prices.
• Transport and energy costs added 0.20 pp, influenced by elevated fuel prices amid geopolitical tensions in key energy-producing regions.

Policy pulse

The 1.00% MoM CPI print places inflation above the Reserve Bank of New Zealand’s (RBNZ) 1–3% annual target band on a monthly basis, signaling persistent underlying inflation. This data supports the RBNZ’s recent hawkish stance, suggesting limited scope for near-term rate cuts.

Market lens

Immediate reaction: The NZD/USD currency pair appreciated by 0.40% within the first hour post-release, reflecting market confidence in the RBNZ’s tightening bias. Two-year government bond yields rose 12 basis points, pricing in higher terminal rates. Breakeven inflation swaps edged up, signaling sustained inflation expectations.

Examining core macroeconomic indicators alongside the CPI provides a comprehensive view of New Zealand’s inflation trajectory and economic health.

Inflation trends

Year-on-year inflation, as per the Sigmanomics database, stands at 3.70%, down from 4.20% six months ago but still above the RBNZ’s target midpoint. The monthly acceleration to 1.00% contrasts with the 0.50% recorded in September and the 0.75% average over the past 12 months, highlighting episodic price shocks.

Monetary policy & financial conditions

The RBNZ’s official cash rate currently sits at 5.25%, unchanged since August 2025. Financial conditions remain tight, with mortgage rates elevated and credit growth slowing. The CPI surprise may prompt the central bank to maintain or even increase rates in upcoming meetings to anchor inflation expectations.

Fiscal policy & government budget

Fiscal tightening measures, including reduced public spending and tax adjustments, aim to temper demand-side inflation. However, infrastructure investments in housing and transport may exert upward pressure on prices in the medium term.

Drivers this month

• Shelter inflation rose 1.20% MoM, the largest monthly gain in 18 months.
• Food inflation accelerated to 0.90% MoM, reflecting global supply chain disruptions.
• Energy prices increased 0.70% MoM amid geopolitical supply risks.

Market lens

Immediate reaction: NZD/USD surged 0.40%, while 2-year government bond yields climbed 12 basis points, reflecting heightened expectations of sustained RBNZ tightening. Inflation breakeven rates increased by 5 basis points, underscoring persistent inflation concerns.

Looking ahead, New Zealand’s inflation outlook hinges on several key factors, including monetary policy responses, external shocks, and structural trends.

Bullish scenario (20% probability)

• Supply chain normalisation and easing energy prices reduce inflationary pressures.
• RBNZ signals a pause or gradual rate cuts by mid-2026, supporting growth.
• Annual inflation falls below 2.50% by year-end 2026.

Base scenario (60% probability)

• Inflation remains sticky around 3–4% annually through 2026.
• RBNZ maintains current rates or implements modest hikes to anchor expectations.
• Fiscal tightening offsets some demand but infrastructure costs keep upward pressure.

Bearish scenario (20% probability)

• Geopolitical tensions escalate, pushing energy and food prices higher.
• Wage growth accelerates, fueling a wage-price spiral.
• RBNZ forced into aggressive rate hikes, risking recessionary pressures.

Policy pulse

The RBNZ’s next moves will be critical. The current CPI overshoot strengthens the case for a cautious but firm monetary stance. Market pricing currently implies a 65% chance of a rate hike by December 2025.

New Zealand’s October CPI release underscores persistent inflation challenges amid complex global and domestic factors. While headline inflation shows signs of easing from earlier peaks, monthly volatility and core price pressures remain elevated. The Reserve Bank’s monetary policy will likely stay restrictive to anchor inflation expectations, balancing growth risks.

Structural & long-run trends

Long-term inflation drivers include housing supply constraints, demographic shifts, and climate-related disruptions to agriculture and energy sectors. These factors suggest that inflation may settle at a higher baseline than pre-pandemic norms, requiring ongoing policy vigilance.

Financial markets & sentiment

Markets have priced in a hawkish RBNZ stance, with NZD strength and rising bond yields reflecting confidence in the central bank’s resolve. However, global uncertainties and geopolitical risks could trigger volatility, necessitating close monitoring.