NZ's Next Economic Crisis Has Already Started

Added: 2026-05-21

[00:00:00]Petrol prices are climbing again.

[00:00:02]Grocery bills still feel ridiculous and across New Zealand there is this growing feeling that something in the economy just doesn't feel right anymore because people aren't living like they're in a booming economy. Businesses have slowed hiring, wage growth has weakened, and consumer confidence is still sitting at recession level lows. Yet, despite all of that, the cost of living keeps creeping higher anyway and that combination of factors is what has some economists starting to whisper a word most people haven't heard since the 1970s. Stagflation. Now, this matters because stagflation is one of the few economic environments where almost everybody feels squeezed at the same time. Workers feel poorer because their pay struggles to keep up with rising costs. Businesses get hit with weaker spending and higher operational expenses. Governments come under pressure to provide relief while economic growth slows. Even central banks get trapped because the usual solutions start working against each other. And for New Zealand, there is one major risk sitting underneath all of this, oil. Because we are one of the most geographically isolated countries on Earth. Almost everything we consume has to be shipped, flown, trucked, or transported huge distances before it reaches us. So, when oil prices spike, it doesn't just affect the cost of filling up your car. It quietly spreads into freight costs, food prices, flights, construction, farming, deliveries, and eventually almost every corner of the economy. That's why economists pay so much attention to energy shocks because historically, they've been one of the fastest ways to push economies into stagflation. And right now, some of those warning signs are starting to reappear. So, in this video, I want to break down what stagflation actually is, why oil matters far more than people realize, why the Reserve Bank is stuck in such a difficult position, and finally and most importantly, what Kiwis can actually do if this becomes the defining economic story of 2026. What makes stagflation so dangerous is that it completely breaks down the normal economic playbook.

[00:01:56]Normally, inflation shows up when the economy is strong. Businesses are growing, consumers are spending confidently, wages are rising, and demand across the economy starts running a little bit too hot. That's usually when the Reserve Bank steps in and increases the OCR to slow things down before inflation gets out of control.

[00:02:15]But, stagflation is very different.

[00:02:17]Stagflation is when prices continue rising even while the economy itself is stalling. Growth weakens, hiring slows down, people become more cautious with spending, yet everyday costs continue climbing anyway. And honestly, that probably sounds pretty familiar to a lot of Kiwis already. The reason this becomes such a problem is because the Reserve Bank's normal tools become far less effective. If inflation is high during a strong economy, they can raise interest rates to cool demand. Painful, but manageable, like we saw in 2022. If the economy is weak and inflation is low, they can cut rates to encourage borrowing, spending, and investment.

[00:02:55]But, stagflation traps policy makers in the middle. Raise rates too aggressively, and you risk pushing an already weak economy into a deeper slowdown. Cut rates too early, and inflation can flare back up again, especially if oil and imported costs continue rising. And this isn't new.

[00:03:11]We've actually seen this happen before.

[00:03:12]During the 1970s, oil prices surged dramatically after major geopolitical shocks, including the last period of major conflict involving Iran. Inflation accelerated while economic growth slowed at the exact creating one of the most difficult economic environments developed countries have faced in decades. And the economists are starting to get nervous because some of those same ingredients are starting to reappear. Oil markets have become volatile again, global trade routes are under pressure, and supply chains are far more interconnected now than they were back then, which means economic shocks can spread across the world much faster than they used to. The Reserve Bank has already warned that higher fuel and imported costs could push inflation upward again, even while economic activity remains weak. And if that trend continues, this could be the biggest economic story New Zealand faces in 2026. Now, one of the reasons stagflation becomes such a nightmare politically is because there's no clean solution once households start feeling the pressure. Normally, the government and Reserve Bank have a fairly obvious direction to move in. If inflation is too high, they slow the economy down. If growth is too weak, they stimulate spending and try to get businesses and consumers moving again. But stagflation creates a situation where solving one problem can make the other one worse.

[00:04:29]And that's exactly the position New Zealand risks finding itself in. Because if inflation starts rising again due to fuel and imported costs, the Reserve Bank may need to keep interest rates higher than people expect. That helps control inflation, but it also keeps pressure on mortgage holders, businesses, and consumer spending at a time when many households already feel stretched. But on the other hand, if policy makers move too aggressively to stimulate the economy through lower rates or heavier spending, they risk weakening the New Zealand dollar and pushing imported inflation even higher.

[00:05:00]And for a country like New Zealand that imports a huge amount of goods, that matters enormously. This is why stagflation tends to frustrate almost everybody at once. Households want relief, businesses want lower costs and strong demand, governments want economic growth, but the tools used to achieve those goals can start conflicting with one another. And to be fair, governments aren't powerless here. There are a few things they can do to soften the blow.

[00:05:23]They can reduce fuel taxes temporarily, increase targeted cost of living support, invest in infrastructure projects to support employment, subsidize public transport, or provide relief for lower-income households struggling with rising essentials. But this is where things get tricky. Most of those measures help manage the symptoms of stagflation rather than solving the root cause itself. Because if the underlying problem is global energy prices, disrupted trade routes, or imported inflation spreading throughout the economy, there is only so much a small country like New Zealand can directly control. And this is the part that makes stagflation feel very different from a normal recession.

[00:06:00]During a normal downturn, people usually expect things to eventually become cheaper again. Inflation falls, interest rates get cut, and households slowly regain some breathing room. That's where we were in Jan and Feb of this year. We finally thought things were returning to normal, but stagflation feels more psychologically exhausting because people can still be employed, still be working hard, and still feel like they're slowly losing financial ground anyway. That's when consumer behavior really starts changing. People delay holidays, they stop renovating, restaurants get quieter, subscriptions quietly get canceled. Households become much more defensive with money because confidence starts disappearing long before the economy officially improves again. And ironically, that cautious behavior can slow the economy down even further, which is exactly why stagflation can become such a difficult cycle to break once it takes hold. The first thing that people should focus on in an environment like this is not trying to outsmart the economy, but to protect their base. During these times, costs can become unpredictable, and being able to respond to whatever comes is valuable. So, as I always say on this channel, having an emergency fund of a few months of expenses becomes very important here. Businesses will be under financial strain, many bills will continue to rise, and having that protective layer is a essential. When it comes to debt, don't go out and buy a bunch of crap you don't need. The market is predicting three, maybe four OCR jumps by Christmas. And if you think that's nonsense, go look at Australia's equivalent because it's already roughly double where ours is now. So, don't try to be crafty. Have a cash reserve, and don't take on debt you don't need. And I think this is especially important for New Zealand because a huge number of households are already heavily exposed to interest rates through mortgages. If inflation stays sticky and rates remain higher for longer than people expect, households with very little margin for error are usually the ones that feel the pressure first. The second thing that becomes incredibly important during periods like this is income stability.

[00:07:55]In booming economies, people often focus heavily on investment returns and growing wealth quickly. But during slower, more inflationary periods, your ability to consistently earn income matters even more. That could mean improving skills, building secondary income streams, staying employable in resilient industries, or simply becoming more valuable in your current role.

[00:08:15]Because one of the harsh realities of stagflation is that wages often lag behind rising costs. Think about it.

[00:08:21]Inflation will cause suppliers to hike their prices, leading to higher costs for businesses, therefore reducing their profits. The one thing businesses can influence, probably in the greatest way, is to cut wage increases. So, protecting your income and finding ways to increase it despite the pressure employers are under is only more important at times like these. And finally, for investors, environments like this can become emotionally very difficult because markets often become more volatile, headlines become more negative, and confidence quickly disappears.

[00:08:52]Historically, panic has usually been one of the most expensive financial decisions people make during uncertain periods. Just look at all the people in 2020 that switched to conservative KiwiSaver funds. They've missed out on the stock market doubling since then.

[00:09:07]All of this doesn't mean ignoring risk or blindly throwing money into the markets. It just means understanding that economies move in cycles and making emotional decisions based entirely on fear rarely ends well long term. Because ultimately, the goal during periods like this isn't becoming rich overnight. It's staying financially stable enough to keep moving forward while a lot of other people start moving backwards. Now, nobody knows for certain whether New Zealand is heading for a full stagflationary period. Oil prices could settle down, global tensions could ease, and inflation could continue cooling without major damage to the economy. So, this is one of the most important things I feel we'll see in 2026. I hope I'm wrong and that the war resolves itself, but every time we get a glimpse of relief, it flares up again, leaving us with the negative consequences. So, I'd love to know what you think down below in the comments. Do you think New Zealand is genuinely at risk of stagflation, or is this just another inflation scare that eventually fades away? Let me know down below in the comments. And if you enjoyed this video, please make sure to hit the bell and subscribe. I've made over 300 videos now exploring New Zealand's investing and personal finance space. So, if you want to grow your wealth in 2026, make sure to subscribe. Also, I've started posting more over on Instagram, so follow me there at Brin Coleman Investing. Thanks for watching, and I look forward to catching you on the next one. Cheers.