March quarter transport cost data only captures a small portion of the spike in fuel prices that has occurred due to the Iran War. On average over the quarter, diesel prices were 7.8% higher than in the December 2025 quarter. June quarter data, which will be available in mid-August, could show an increase of about 60% in fuel costs from the March result, giving a much clearer indication of the pressures that transport firms are currently under. The only good news is that, at the time of writing, diesel prices have retreated about 17% from their peak recorded in mid-April.
Trends across other cost categories for transport operators were more favourable in the March quarter. A 1.3% decline in costs for repairs and maintenance saw annual growth in this cost category slow to a four-year low of 5.0%. Cost growth for tyres and vehicle parts also eased, to 0.4%pa, which was the smallest annual increase in 2½ years. Costs for other overheads were slightly down, by 0.3%, meaning that annual cost growth was at a five-year low of 0.9%.
Labour cost growth edged up, from its 10-year low of 1.4%pa in the previous quarter, to 1.6% in the March quarter. The labour market had been showing signs of improvement in late 2025 and early 2026, with increased numbers of job ads and a small lift in employment. Weaker demand and uncertainty caused by the fuel price spike are now expected to delay that recovery, meaning that labour cost growth is likely to stay subdued in coming quarters. However, we are conscious of skill shortages in some parts of the economy, meaning that firms will be keen to look after and retain their best staff. As a result, the current lift in living costs for people could flow through into a tick up in wage inflation during 2027/28.
Interest rate cuts by the Reserve Bank in late 2025 flowed through into a 0.9% reduction in finance costs in the March quarter, meaning that these costs are now 26% lower than in September 2023. Financial markets are increasingly looking towards interest rate hikes in the second half of this year, as the Bank is forced to push against the flow-on inflationary effects of the fuel price spike. Most forecasters expect the official cash rate to rise from 2.25% currently to 3% by the end of 2026, and further increases next year could see the official cash rate reach 4% by mid-2027.
Diesel costs are likely to be the most significant driver of changes in costs for transport operators in coming quarters. The lack of clarity about the aim or endpoint of the Iran War makes it difficult for businesses to plan. However, we expect a higher level of risk to be priced into diesel prices over the medium term. At this stage, Infometrics is forecasting diesel prices of $2.90/L at the end of 2026, with prices settling in the $2.30-2.40/L range by 2028.
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.
