Economists don't anticipate a higher-than-expected increase in prices to interfere with ongoing drops in interest rates.
Data on Thursday showed that inflation rose 0.9 percent in consumer price index (CPI) the three months to March, the largest increase since the September quarter of 2024.
Domestic prices - non-tradables - remained the backbone of inflation, notably rates, rents, and the costs of purchasing a new house.
But a key driver was a 22.6 percent rise in tertiary education costs, which ANZ said was due to a review by Stats NZ of fees-free eligibility for the period.
ANZ senior economist Miles Workman said, if that "tertiary education noise" was ignored, along with the volatile tradable side, the data was much as the Reserve Bank expected.
"I'd say today's data provides good confirmation that past monetary tightening has worked. With underlying inflation looking like it's back in the bag, the CPI starting point won't present any hurdles to the RBNZ lending NZ's economic recovery a little more support in the face of weaker global growth and confidence. We remain comfortable with our forecast that the OCR will be cut to 2.5 percent."
Kiwibank also expects the OCR to drop to 2.5 percent and chief economist Jarrod Kerr said the latest data was a solid update that did not change that.
At Infometrics, chief forecaster Gareth Kiernan said he could see the argument for a 2.5 percent rate, too, although the Reserve Bank would need to be "a bit cautious".
"Given the likelihood that the emerging economic recovery is stunted by the trade war and associated uncertainty, more favourable inflation outcomes would open the door to further cuts, and under those conditions, an OCR of 2.5 percent is possible."
BNZ chief economist Mike Jones said he only expected the OCR to fall to 2.75 percent, the same level he had been predicting for two years. But he could see a scenario where it dropped lower.
"We haven't changed our forecast given uncertainty continues to swirl. But what we are now flagging, for the first time, is the risk that rates go lower than what we've been forecasting, and stay low for a longer period of time. Not only has domestic economic momentum sagged a little recently, but the uncertainty and trade impacts from the trade shock will do real damage to global growth.
"The fact inflation is creeping up again, and likely to continue to do so, will come as a bit of an annoyance to the bank. But the bigger picture is that inflation remains well contained overall, and things have moved on such that the Reserve Bank's focus is now trying to balance the downside risks from the global trade shock."
At ASB, economists said the Reserve Bank would be cautious, given the "unenviably muddy environment" it had to navigate. But they said the deteriorating global outlook would dampen medium-term inflation predictions.
"We continue to expect the OCR to be cut in gradual 25bp increments, taking the OCR to 2.75 percent by August 2025. A prolonged global trade spat could deliver more collateral damage to the NZ economy, and it may be necessary for the RBNZ to push the OCR further below circa 3 percent neutral levels."
Westpac chief economist Kelly Eckhold agreed underlying inflation pressure remained well contained.
"Headline inflation is at 2.5 percent and is set to remain well in the top half of the Reserve Bank's 1 percent to 3 percent target range for a while. For those expecting large interest rate reductions in short order then this is a bit of a challenge," Eckhold said.
"Today's CPI didn't provide much support for the idea that inflation will significantly undershoot 2 percent in the period ahead. For Westpac's part, it supports our view that moving steadily but carefully is appropriate - hence a 25bp cut in May looks like a decent bet for now. Downside risks to the OCR after May still look reasonable but the extent of those are harder to assess while the global environment remains so uncertain."
This article was first published by RNZ