Source: Radio New Zealand
Motorists drive past a plume of smoke rising from a reported Iranian strike in the industrial district of Doha, 1 March 2026. MAHMUD HAMS / AFP
A worst of worlds scenario for consumers is how one economist is describing the dual effects of the Middle East conflict on both inflation and economic growth.
The war and the resulting supply worries are pushing up global oil prices, with Brent Crude climbing above US$100 a barrel on Monday, to reach its highest level since 2022.
The ensuing price jumps at the petrol pump will not only affect people’s wallets directly, they are expected to flow right through the wider economy.
“Petrol prices are a key input to so many businesses, and so as their costs rise, that’s likely to push up costs on the other side as well,” BNZ head of research Stephen Toplis said.
“And that’s not even taking into consideration the increased cost of doing business, like insurance costs rising, and the fact that you may not be able to use freight routes that you previously used.”
The deflation flipside
Toplis said with the fuel price increases acting like a tax on people’s income, the less money they have to spend elsewhere, which tends to mute economic growth, creating a deflationary effect.
“The Reserve Bank’s got this awful challenge of trying to be very aware of the immediate inflationary challenges versus the deflationary challenges further on down the track,” he said.
“But given we’ve already got rising inflation expectations, given that prices will pick up, given that annual inflation might remain at 3 percent or more for a little while, then there’s certainly going to be, I think, in the immediate future, more pressure on the central bank to bring forward its rate hikes without getting too carried away about things.”
Based on current data, September is BNZ’s pick for a hike in the Official Cash Rate (OCR).
The conflict’s effects are frustrating for New Zealand, said Toplis, because it has been a long climb out of a dark economic hole for the country.
“The recovery was fragile and any shock of any description is highly unwelcome at the moment and certainly one of this size couldn’t have come at a worse possible time,” Topliss said.
Markets match the Mid East turmoil
After a muted greeting to the start of the conflict in which markets took a “wait and see” approach, the ongoing conflict saw Australasian markets crash on Monday.
The New Zealand share market had its worst session since April 2025, meanwhile Australian and Asian markets also plummeted.
The benchmark NZX50 dropped 3.1 percent or 421 points, with across the board falls in shares as investors worry about the potential economic fallout from higher oil prices.
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– Published by EveningReport.nz and AsiaPacificReport.nz, see: MIL OSI in partnership with Radio New Zealand
