Cost of living dropping as mortgage interest rates tumble
Mortgage interest payments falling 17.3% last year kept the cost-of-living hikes for the average household at just 2.2%.
Wednesday, February 4th 2026, 8:21AM
by Sally Lindsay
This was below the 3.1% CPI inflation rate, Stats NZ figures for the Household Living Costs Price Indexes (HLPIs) show.
The cost of building a new home rose 1.2% during the year.
The difference between the HLPIs and CPI inflation is HLPIs include interest payments (mortgage, credit cards, and other interest) while the CPI includes the cost of building a new home.
HLPIs measure how inflation affects 13 different household groups, plus an all-households group (an average household). In contrast, the CPI measures how inflation affects New Zealand as a whole.
After peaking at 8.2% percent in the 12 months to the December 2022 quarter, HLPI growth has continued to ease, returning to levels last seen in June 2021, when it was 2.5%.
Meanwhile, CPI inflation was 3.1% in the 12 months to the December 2025 quarter, following a 3% increase in the 12 months to the September 2025 quarter. The most recent CPI high was 7.3%, in the 12 months to the June 2022 quarter.
The latest data for the year shows differences in how inflation has been experienced by various household groups.
Stats NZ says the highest-spending households had the lowest inflation rate at 0.8%. The main contributor was an 18.6% drop in mortgage interest payments.
Among the highest-spending households, 82.3% own their home and 57.2% have a mortgage.
"Since these households spend a higher proportion of their expenditure on interest payments, particularly mortgage interest, falling interest rates have kept their living cost increases comparatively low," Nicola Growden,Sta ts NZ's prices and deflators spokeswoman says.
Pensioner households experienced the highest inflation rate at 3.8%. The main contributor was local authority rates which increased 8.8%. This was nearly one-fifth of their overall inflation.
Electricity, which increased 12.1%, and health insurance, which increased 20.3%, were the other key contributors to their latest increase.
“Superannuitants are more likely to own their own homes and not have a mortgage. Higher prices for local authority rates have more impact on them than on other household groups,” Growden says.
Among pensioners, 85.7% own their home and 8.5% have a mortgage.
The impact of local authority rates was lower for beneficiary and Māori households. For beneficiary households, rates contributed 6.3% of their annual inflation rate of 3.1%.
The 12.1% annual rise in electricity prices had more impact on lower expenditure households – electricity contributed nearly one-quarter of their annual inflation rate of 3.7$%. Beneficiary households were similarly affected, with electricity contributing one-fifth of their annual inflation rate of 3.1%.
“Most households rely on electricity for their daily needs. Changes in electricity prices will impact households differently depending on how much of their expenditure goes towards their monthly power bill,” Growden says.
Health insurance prices increased 20.3%. This increase had a greater impact on pensioners, with health insurance contributing 9.3% of their inflation rate of 3.8%.
For higher-expenditure households, health insurance contributed one-third of their annual inflation rate of 0.8%.
Rent increased 1.9% over the year and was the main contributor to rising living costs for beneficiary households. Rent contributed 18.4% of their annual inflation rate of 3.1%. Māori households were similarly affected, with rent contributing 17.3% of their annual inflation rate of 2.2%.
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