New Zealand warns inflation will go 'much higher' if Iran war drags on

New Zealand's finance minister said on Monday inflation was likely to rise "much higher" this year and stay outside the central bank's target range if the conflict in the Middle East drags on.

Finance Minister Nicola Willis said the latest Treasury department modelling had inflation peaking higher than previously expected based on a scenario with "a longer conflict with deeper disruption to supply chains".

"They think inflation will go much higher this year, and it will stay out of our target band," Willis told reporters.

Data released in January showed fourth-quarter inflation of 3.1% breached the central bank's target band of 1% to 3%. With energy prices rising, markets are increasingly pricing in a near-term policy tightening.

Willis declined to share specific figures because she said Treasury had not settled on a final or central scenario.

-Reporting by Christine Chen in Sydney; Editing by Jamie Freed/Reuters