New Zealand's cost of living is set to rise 50% more than economists expected this year, driven by fuel crisis pressures and persistent inflation, RNZ reports.

The revised forecasts from major economic firms paint a grim picture for Kiwi households already stretched thin by two years of elevated inflation and interest rate hikes.

ASB Bank's latest analysis suggests the cost of living will increase by approximately 4.5% in 2026, up from earlier projections of around 3%. The culprit? Global fuel prices triggered by the Iran conflict, combined with domestic cost pressures that refuse to ease.

"We're seeing fuel costs flow through to everything - transport, food, manufacturing," said Nick Tuffley, ASB's chief economist. "This is hitting household budgets from every direction."

Petrol prices in New Zealand have already jumped 35% since the Strait of Hormuz crisis began, and there's no sign of relief. The government has implemented fuel excise cuts, but they're barely making a dent in the overall price surge.

Food inflation remains stubbornly high as well, with grocery prices up 8% year-on-year. Fresh produce, dairy, and meat have all seen significant increases, despite New Zealand being a major food exporter. Here's the kicker: Kiwis are paying more for their own food than many overseas buyers.

Prime Minister Christopher Luxon's government is under intense pressure to provide relief. The National-led coalition came to power promising economic competence and cost-of-living solutions, but so far the results have been limited.

The Reserve Bank of New Zealand faces a difficult balancing act. Inflation is still above the target band, but raising interest rates further would hammer households with mortgages. About 60% of New Zealand mortgages are due for refinancing in the next 12 months, and borrowers are facing significantly higher rates than when they last locked in.