New Zealand Inflation Surges in Q3 2018

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Consumer prices in New Zealand rose unexpectedly in the three months ending September 2018; official data showed last week.

Headline inflation rate was seen rising 0.9% on a quarterly basis during the third quarter of 2018, data from Statistics New Zealand showed on Tuesday last week.


The increase in the inflation rate exceeded the median estimates. Economists polled forecast an increase of 0.7% on a quarterly basis. Meanwhile, the third quarter inflation data also came out stronger after posting a 0.4% increase in the second quarter.

On a year over year basis, New Zealand’s inflation rate rose 1.9% which beat estimates of a 1.7% increase. In the previous quarter, New Zealand posted an annual inflation rate of 1.5%, showing a strong acceleration.

New Zealand Q3 Inflation
New Zealand Q3 Inflation: 1.9% (Source:

The unexpected increase in consumer prices was driven largely due to higher fuel prices. Petrol prices were seen rising a whopping 19% in September on an annualized basis. This was the biggest jump in fuel prices since June 2011.

On a quarterly basis, petrol prices rose 5.5% for the three months ending September 2018. The average price of fuel, the Octane 91 wad seen rising to 2.18 New Zealand dollars even after discounts. This was higher compared to the June quarter where fuel prices were 2.06 New Zealand dollars.

There were a number of factors that contributed to the increase in fuel prices during the quarter. International crude oil prices have been surging strongly during the period. At the same time, the New Zealand dollar’s exchange rate also continued to fall sharply. On top of these two factors, there was also a regional fuel tax of 10 cents on a liter that was imposed in Auckland in July this year.

In the region, petrol prices rose 8.8% during the quarter. This was a big jump compared to the median increase of three through five percent in the rest of the cities in New Zealand.

Fuel prices make up only about 4% of the nation’s consumer price index report, but it makes a big impact on the overall inflation rate. Higher fuel prices also lead to an increase in food prices and other items measured in the inflation report.

Fuel prices have been rising sharply for four consecutive quarters since September 2008 period and mark the first time in recent records.

Excluding fuel prices, the core inflation rate rose 0.7% on the quarter ending September 2018. On a year on year basis, core inflation rate rose 1.2%. On both counts, core consumer price index rose sharply. Still, core inflation continues to lag. The Reserve bank of New Zealand is targeting a midpoint range of 2.0% as its inflation target.

For New Zealand, the falling exchange rate has also had an impact on its imports. This contributed to a 2.6% increase on some of the items imported.

Economists expect a further uptick in the inflation rate in the fourth quarter of the year. This comes as the New Zealand authorities imposed a 3.5 cent increase in taxes on petrol consumption. This came into effect from September 30 and is expected to impact headline inflation in this quarter further.

However, a lot would depend on if crude oil prices remain high. The U.S. President Trump has been calling on OPEC and especially Saudi Arabia to curb the current surge in oil prices. After the U.S. pulled out of the Nuclear accord with Iran, the sanctions are expected to come into effect this November.

This is likely to result in a huge supply gap. However, following the recent OPEC meeting in Algiers, Saudi Arabia and Russia struck a deal to raise production. But at the same time, Saudi oil officials have made their preference for higher oil prices clear.



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