Is 2026 going to be another expensive year?

It was meant to be a year of recovery, but for many households, 2026 is shaping up to be another expensive exercise.

With disruption to fuel supplies putting pressure on prices, households may face increases from many angles.

Fuel

Oil prices remain volatile, shifting with news out of the Middle East.

Retail gas prices seem to have plateaued for now. Gaspy data shows that the average price of 91 is now $3.26 per litre, down 3.82 percent over the past 28 days. Diesel is at $3.29.

While it may be a relief to many that prices are not still pushing up, it's still a much higher price than was paid in February.

Simplicity chief economist Shamubeel Eaqub said the average family would buy 45 litres of petrol a week. That cost a peak of $157 in the week of April 10, which had dropped back to $147 according to Gaspy pricing.

But in February, it would have cost them about $114.

Stats NZ household living cost data this week showed petrol spending up 3.5 percent in the March quarter. Prices only started to rise at the end of that period so the latest increase will be more fully captured in the next update.

Eaqub said there would be an effect directly at the petrol pump for households, and then through further layers.

Some businesses were applying surcharges to cover higher fuel bills. Then there would be an impact on materials and goods and services. "There will be different phases of the shock. For example fertiliser prices won't feed through to food prices for a while. It'll take months."

Food

Food prices are expected to rise through the rest of this year. Infometrics chief executive Brad Olsen said earlier that the impact of fuel price rises was unlikely to show in official data until April or May's were released.

His colleague Gareth Kiernan pointed out that fishing is heavily reliant on oil-based fuels, with 25 percent of its input costs required to cover the fuel bill.

"Some of the discussion around fertiliser suggests while prices have lifted substantially we might not see the full effects of that at the supermarket until next spring or summer when the growing season comes through here."

He said it was an area where margins were smaller which could mean that there was less ability to absorb cost increases.

Kiernan said it was likely that people on lower incomes would be hardest hit.

"I think what we generally see during periods of higher inflation is that a lot of the time lower income households have less ability to be able to avoid it or substitute away or change their behaviour and obviously less wriggle room in their budgets as well… less savings from week to week. It does tend to hit disproportionately harder."

Westpac chief economist Kelly Eckhold said the rising price of food was likely to be the biggest pressure on households, outside fuel itself.

"Once you start looking six months down the track, there are some shorter-term impacts that will come through from higher transportation costs in food. But the thing that I'm particularly concerned about is that global food prices likely will rise quite significantly because there's a shortage of fertilizer out there in the world.

"So that will reduce the supply of things like grains, which then has a knock-on effect of protein prices and that hits ordinary New Zealanders and higher dairy prices, higher meat prices, all of those sort of things."

Senior Westpac economist Satish Ranchhod said it was likely to soften spending on hospitality and other luxuries. "Even when you see small increases in petrol prices, households will often say 'well I filled up the car, I'm not going to get takeaways'. Now you've got a really large increase I think there's a risk you see impacts in other discretionary spending areas as well."

Power

Power prices are rising again, and are predicted to be up about 8 percent this year.

It's something the Electricity Authority is looking into. It told RNZ this week that much of this year's price increase has been driven by changes to the lines component of bills.

The increases have not been felt evenly around the country, and some lower-income areas, such as the Far North, have had bigger bill increases than the main centres.

"It'll be middle and lower income households that will be hit harder," Eckhold said. "They tend to spend more of their discretionary income on necessities. It's the cost of those necessities, thinking about food in particular, energy costs - these are the things that are rising relatively steeply."

Interest rates

Interest rates had their biggest fall since data began over the year to March, Stats NZ said this week. Burt they are already picking up again, and most bank economists now expect that the Reserve Bank may have to push up the official cash rate in the coming months. Most expect a July start, but some have said May is not impossible.

From a low of about 4.5 percent, the two-year special home loan rate at the main banks has lifted to more than 5.2 percent in many cases.

The drop in interest rates significantly reduced pressure on higher-spending households in the year to March because they tend to spend more of their spending on interest costs than lower-income households. But the continued pressure on essentials is likely to mean that lower-spending households, who are generally also lower-income, are facing higher inflation than the average for now.

"The big thing to watch is how the Reserve Bank is going to respond to this pickup in inflation pressures because, obviously, that will be important for borrowing costs," Ranchhod said.

"And it's not an easy one for them to respond to because those higher oil prices, it is going to be a drag on activity. But it's pushing up inflation at the same time.

"They've got to balance those concerns. Even though they're conscious that, hey, if you raise interest rates, it could have a dampening impact on economic activity and on the labour market, the past couple of years have shown just how corrosive high inflation can be and it can have a really long-lasting impact. I think it'll be tough for them to keep looking through that if the shock continues for a long time."

And other things

AUT professor John Tookey earlier warned that construction costs could increase sharply because of the disruption.

Eckhold said he expected some categories of construction costs could increase in price quite a lot.

"A lot of it's imported, a lot of it's reliant on things like plastics and stuff like that, for example, PVC piping... And there's a lot of anecdotes, both in New Zealand and globally, that those prices have had to adjust quite quickly."

Kiernan said that was likely to mean higher council rates than otherwise in future.

"If you had another significant lift in infrastructure costs, for example, then, you know, that's going to place more pressure on local government rates again."

Eaqub said that wasn't the extent of the plastic problems.

He said the price of condoms was increasing. "They use a particular grade of silicone which relies on very high-grade plastics."

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