Mixed transport cost pressures, with economy on the cusp of recovery
Cost pressures for the transport industry remained mixed in the December 2025 quarter, with decreasing costs for some inputs but continued pressure across other categories. These trends are reflective of the broader economy, where patchy demand conditions and spare capacity have led to sharper pricing for some goods and services, but there are other pockets of significant price rises that are keeping inflation relatively high and maintaining pressures on businesses and households.
For transport operators, the categories with persistent cost pressures include repairs and maintenance (up 4.5% in the December quarter and 11.6% over the last year) and other overheads (up 2.3% in the December quarter and 4.1% over the last year). These rises reflect higher costs for business inputs such as electricity and gas, insurance, and rates, as well as firms with a servicing arm looking to restore their margins as vehicle sales volumes remain under pressure.
Diesel prices also rose 2.3% over the December quarter to be higher than a year earlier for the first time since mid-2024. Increased sanctions on Russia in late 2025 had led to a shift in demand towards fuel from other suppliers, resulting in higher margins for international refiners. The lower New Zealand dollar was also contributing to higher domestic fuel prices. These effects appear to have dissipated recently, taking domestic diesel prices to a six-month low in February. However, disruptions to international oil supplies caused by the recent attacks on Iran are likely to push diesel prices above $2/L, with considerable upside risk if the Strait of Hormuz remains closed for any extended period or if oil and gas production facilities in the Middle East are substantially damaged.
Interest rates continued to track lower as the Reserve Bank cut the official cash rate (OCR) by 75 basis points, to 2.25%, in the December quarter. It is likely that the OCR is now at its low point for this cycle, with further small declines in financing costs for firms possible in the March 2026 quarter. Financial markets are now turning their attention to when interest rates will start to rise again. The first increase is forecast to take place between September and December this year, with the OCR reaching 3% by mid-2027 and possibly rising further by the end of next year.
Cost pressures for tyres remain subdued, down 1.0% in the December quarter and up just 0.6% over the last year. The weak labour market has also dragged labour cost inflation down to a 10-year low of just 1.4%pa. Although the unemployment rate is at a 10-year high of 5.4%, recent data shows an emerging upward trend in job ad numbers and the early stages of a pick-up in employment. As a result, labour cost inflation is unlikely to ease any further.
Infometrics prepares a customisable road transport cost index for National Road Carriers every quarter. The quarterly cost index tool updates give NRC trucking operator members timely information to plan and better manage their businesses. NRC members can log onto www.natroad.co.nz to enter their cost inputs into the cost index tool to see the impact of economic changes on their specific business.
