What are plausible most pessimistic and most optimistic 12‑month inflation rates for New Zealand?

I can’t predict exact future values, but I can give a reasoned, transparent range of plausible annualized 12‑month inflation outcomes for New Zealand over the next 12 months, and explain the assumptions behind the pessimistic and optimistic bounds.

Key context and assumptions

• Baseline: recent New Zealand annual CPI has been in the low-to-mid single digits (you did not give a date; my knowledge cut-off is 2024‑06). Monetary policy (RBNZ) has been tightening in response to elevated inflation, but the stance, global energy/food prices, and supply shocks can change the path. Fiscal policy, wage growth (including any large pay rounds), and housing/rent inflation are major domestic drivers. Global commodity prices, shipping costs, and FX movements (NZD) are major external drivers. Weather/climate shocks and pandemic/resurgence risks can also move outcomes.
• “Lowest” = scenario where disinflation is strong: global energy/food prices fall, supply chains normalize, RBNZ’s policy rates succeed in cooling demand (without big wage reacceleration), and rents moderate. “Highest” = scenario where supply shocks or commodity price spikes occur, the NZD weakens substantially, wage pressures persist or accelerate, and monetary policy is less effective.

Plausible 12‑month annualized inflation range (percent per year)

• Most optimistic (lowest) plausible annualized CPI: about 0.5% to 1.0% per year.
  • Rationale: A rapid fall in global fuel and food prices, easing services inflation as demand cools, and rents turning down could push annual inflation near zero or low positive territory. Very unlikely to go negative on an annualized national CPI given upward pressures in housing/rents, so a floor around ~0.5% is plausible in a strong disinflation case.
• Most pessimistic (highest) plausible annualized CPI: about 6.0% to 8.0% per year.
  • Rationale: A renewed global commodity/energy shock, a weaker NZD, or faster-than-expected wage growth (or unexpectedly large rent increases) could reaccelerate inflation. Above ~8% would require a severe and sustained shock; the RBNZ and other policy levers make even higher sustained inflation less likely over just a 12‑month horizon.

Summary (single-line)

• Low plausible bound: ~0.5% to 1.0% p.a.
• High plausible bound: ~6.0% to 8.0% p.a.

Uncertainty note These ranges are qualitative, not forecasts, and depend on uncertain shocks (commodity prices, FX, wages, policy responses). For decisions that require precision, consult up‑to‑date forecasts from the Reserve Bank of New Zealand, Treasury, or professional forecasters.