New Zealand households are expected to face continued financial pressure through 2027 as rising fuel costs and a weakened New Zealand dollar contribute to persistent inflation, according to analysts at ASB. The bank’s latest Quarterly Economic Forecast projects two further increases in the Official Cash Rate (OCR) before the end of the year, raising it to 3.25%.

ASB’s acting chief economist Kim Mundy highlighted the ongoing challenges posed by elevated petrol prices, which are approaching early 2026 highs amid ongoing geopolitical tensions. She noted that the Reserve Bank of New Zealand (RBNZ) will closely monitor inflation expectations, warning that if these become unanchored, the OCR could be pushed higher than current forecasts through next year.

The forecast was revised downward for economic growth while inflation expectations were raised for the final quarter of 2026. ASB anticipates annual inflation to ease slightly in the third quarter before climbing above 4% again by the end of the year. This trajectory could delay inflation returning to the RBNZ’s target range of 1–3% until the latter half of 2027.

The Consumer Price Index (CPI) rose 4.1% in the year to June 2026, up from 3.1% in the previous 12 months. Despite historic increases in oil prices during the first half of the year, Mundy pointed out that New Zealand’s economy maintained expansion in both the first and second quarters. Strong exports and construction activity supported growth, but household consumption remains weak, with consumer spending declining for the first time in six quarters during Q2.

ASB expects a modest rebound in consumer spending in Q3 helped by temporarily lower fuel prices, although recent petrol price increases have introduced further uncertainty. High fuel costs, stagnant or declining house prices, a softening labor market, and rising interest rates are expected to restrain household demand in the short term. Economic growth is projected to be uneven, reliant mainly on export demand until domestic conditions improve next year.

Adding to the uncertainty, ASB cited risks including the upcoming general election, fluctuating oil prices, a potential super El Niño affecting rural sectors, and possible shifts in population growth if fewer people leave for Australia. Mundy advised caution, stating that recent experience in 2026 underscores the need to prepare for adverse scenarios while hoping for more favorable outcomes.

Meanwhile, economists at ANZ have also forecast further OCR increases, anticipating three rate hikes between October 2026 and March 2027 that would raise the cash rate to 3.50%. They cited stronger than expected economic momentum, a sharp rise in crude oil prices, and a depreciating New Zealand dollar as contributing factors to their outlook.