RBNZ Economist Warns Oil Shocks May Cause Persistent Inflation

Reserve Bank of New Zealand Chief Economist Paul Conway warned on July 13, 2026, that inflation triggered by the Middle East conflict and rising oil prices risks becoming persistent. Speaking at a BusinessNZ event in Wellington, Conway presented research showing that New Zealand firms now pass on cost increases more readily than they reduce prices when costs recede, a trend that could embed temporary shocks into long-term inflation.

Conway characterized the recent 25-basis-point increase of the Official Cash Rate to 2.5% as a calibrated reduction in monetary policy stimulus and a drift toward a neutral setting, rather than a shift to a restrictive stance. The central bank expects annual inflation to peak at 3.9% in the June 2026 quarter, which exceeds its 1% to 3% target range.

While Conway noted that falling oil prices have eased near-term pressures and medium-term expectations remain anchored, he stated the bank would respond more firmly if inflation pressures prove persistent. The RBNZ Monetary Policy Committee indicated that further reductions in monetary stimulus are likely as economic activity strengthens and weak potential output growth complicates the return to the 2% inflation target midpoint.