New Zealand's inflation is likely to have cooled in the September quarter, but not enough to rule out another interest rate hike next month, according to ANZ, one of the country's largest banks.
In a note released Friday, ANZ forecast headline inflation eased to 3.8% year-on-year in the September quarter, with prices up 0.7% over the three-month period. That's slightly above ANZ's previous call of 3.7%, but a touch below the Reserve Bank of New Zealand's (RBNZ) own projection of 3.9% from its September Monetary Policy Statement.
The bank also expects "non-tradable" inflation—prices driven mainly by local costs like wages and rents—to edge up to 3.5%, while "tradable" inflation, which covers items more influenced by global prices and the exchange rate, cools to 4.2%.
Why the RBNZ watches more than the headline number
The RBNZ doesn't just look at the headline inflation figure. It cares more about whether price increases are spreading across many categories and whether they're likely to stick around. That's why it pays close attention to "core" inflation measures and "diffusion" indices—tools that strip out one-off moves and reveal how broad inflation really is.
Even if the consumer price index (CPI) lands near 3.8%, ANZ argues the backdrop has shifted since the central bank's last meeting. A softer New Zealand dollar makes imported goods more expensive, and higher oil prices can feed into other prices through transport and production costs. That combination, the bank says, keeps the October decision "live."
This isn't just a New Zealand story. Globally, central banks are wrestling with the same puzzle: inflation is coming down from its peaks, but it's not falling fast enough to let them ease off the brakes. In the United States, for example, recent data showed producer inflation jumped in September as energy costs surged, a reminder that price pressures remain stubborn. Similarly, oil and gold diverged as Hormuz tensions met hot producer inflation, highlighting how energy prices are feeding into broader inflation concerns.
What it means for your borrowing costs
For everyday New Zealanders, the key takeaway is that "cooling" inflation doesn't automatically mean quick relief on mortgage rates or other loans. If markets start to believe an October rate hike is more likely, wholesale short-term interest rates often rise first, because traders price in where policy is headed.
New Zealand banks tend to base floating-rate and short fixed-term mortgage rates on those short-term benchmarks, so these products can reprice sooner than longer fixed loans. The upshot: households and small businesses rolling off a fixed rate or already on variable rates face a higher chance that interest costs stay elevated into spring, even if the September inflation print looks encouraging.
This dynamic is similar to what investors see in other markets. For instance, Malaysia's FBM KLCI slipped as US inflation revived rate fears, and hot US inflation hit Europe's AI stocks as rate fears returned. When inflation data surprises to the upside, markets quickly reassess the path of interest rates, and that can ripple through asset prices and borrowing costs worldwide.
The broader picture
New Zealand's economy has been grappling with high inflation for a while, and the RBNZ has been one of the more aggressive central banks in raising rates. The question now is whether the current cooling trend is enough to pause, or whether the recent currency and oil moves force another hike.
ANZ's forecast suggests the central bank is in a tight spot. On one hand, inflation is clearly moderating from its peak. On the other, the recent depreciation of the kiwi dollar and rising oil prices threaten to undo some of that progress. Oil prices have been a particular focus, with retail sales beating forecasts in September, but gas prices doing much of the work—a sign that higher energy costs are showing up in consumer spending data.
For investors, the takeaway is to watch the RBNZ's October meeting closely. A hike would likely push short-term rates higher, affecting floating and short-fix loans. It could also strengthen the kiwi dollar, which would help dampen imported inflation but could weigh on export competitiveness.
In the meantime, the message from ANZ is clear: don't assume that a softer inflation number means the rate cycle is over. The central bank is focused on making sure price increases are truly under control, and it's willing to act if the recent currency and oil trends threaten that goal.
