Inflation and Global Economic Factors
- While near-term inflation pressures have eased due to falling global oil and petrochemical prices following the partial reopening of the Strait of Hormuz, annual headline inflation remains above the RBNZ's target range of 1% to 3%.
- Inflation is expected to have peaked at 3.9% in the June 2026 quarter and is projected to decline to 3.3% in the September 2026 quarter.
- Internationally, the global economy has remained resilient despite ongoing headwinds, supported by strong investment in artificial intelligence, defense, and economic security.
Risks and Future Monetary Policy
- The Committee highlighted several factors that could influence medium-term inflation and future monetary policy decisions:
- Price-setting behavior: A key determinant of the medium-term outlook is whether businesses absorb higher costs by reducing profit margins because of weak demand or pass those costs on to consumers to rebuild margins as the economy recovers.
- Exchange rates and international risks: A sustained depreciation of the New Zealand dollar could increase imported inflation. In addition, a renewed escalation of the conflict in the Middle East could once again disrupt global energy markets.
- Future OCR movements: Although domestic financial conditions had recently eased—which this OCR increase aims to offset—further OCR increases are considered likely. However, the timing of any additional increases remains highly uncertain and will depend on incoming data regarding productive capacity and medium-term inflation pressures.