The Reserve Bank of New Zealand (RBNZ) is expected to lift the official cash rate (OCR) three times this year, starting in July, with the OCR reaching 4% by mid-2027 and as high as 4.5% in the first half of 2028, said Infometrics in a Friday report.
Infometrics predicts that higher fuel prices will drive inflation to 4.8% per year in the second quarter, an immediate outcome of the Middle East conflict that the RBNZ can do little about.
The economic forecaster added that even if fuel prices moderate in the second half of the year, inflation is still expected to be at 3.9% per year in March 2027 and 3% by December 2027, with second-round effects from the fuel price spike rippling across the economy for several quarters.
"We now expect household spending to grow just 0.8% this year, a full two percentage points slower than our pre-conflict forecasts," said Gareth Kiernan Infometrics chief forecaster.
Infometrics said that gross domestic product is now expected to grow by 1.3%, down from the previous expectation of 2.5%, assuming no serious or prolonged disruption to New Zealand's fuel availability, but added that the government's Fuel Response Plan may be elevated to phase 2 or 3 at some stage.
Kiernan said household spending is now expected to grow just 0.8% this year, 2 percentage points lower than previously expected.