Buying guide

What is inflation in NZ

The New Zealand economy has been struggling with inflation - find out what inflation is and what it means for you.

Last updated: 18 January 2024

You’ve probably seen the word in the news, heard it in conversations and even experienced it at the supermarket. In fact, it’s hard to go anywhere in Aotearoa New Zealand without being affected by it. 

That is, inflation. 

This economic term describes a phenomenon that affects the lives and livelihoods of every Kiwi every day (and billions of people all around the world). But what exactly is inflation and what causes it?

What is inflation anyway?

In the words of Aotearoa New Zealand’s Reserve Bank, “Inflation is a term used to describe a rise of average prices across an economy. It means that money is losing its value.”

In other words, inflation is when everything gets more expensive and you’re able to buy less stuff. This can make life a bit harder - for some, it may mean that it’s hard to make ends meet, for others it may mean cutting back on luxuries like travel.

Inflation is measured by assessing the change in a basket of goods and services that may be purchased by an average New Zealand household. The percentage change in the price of this basket of goods is known as Consumer Price Index inflation, and is reported on by Stats NZ quarterly and annually.

You may notice inflation everywhere - espcially at the supermarket.

How does inflation affect us all?

Apart from making everything more expensive, inflation has a number of negative effects:

  • Inflation can reduce the value of investments. For example, if inflation is at 7% and your investment is returning 6% a year, the value of your money will still be decreasing by 1% per annum. No bueno for future you.

  • If inflation sticks around for too long it can discourage long term investment in businesses, which can decrease productivity.

  • High inflation may go hand in hand with high interest rates. That’s because the Reserve Bank uses high interest rates to reduce people’s disposable income, which decreases demand in the economy and thus reduces inflation.

Inflation is bad for people but it’s also bad for the economy. It can deepen booms and busts and periods of high inflation are often followed by recession. For that reason the Reserve Bank uses monetary policy and the OCR to keep inflation between 1-3%.

What causes inflation?

There are generally two causes of inflation: demand-pull and cost-pull. Cost-pull inflation happens when there’s an increase in the cost of producing goods and services. This could be due to an increase in the cost of raw materials, like oil or precious metals, or because of an increase in the cost of labour.

Demand-pull inflation happens when there’s a strong consumer demand for a product or service. If this demand continues the supply of the goods and services become harder to get, and as a result consumers are willing to pay more.

What was inflation in 2023 NZ?

Inflation was at 5.6% during the year to October 2023, according to Statistics NZ, but it was much higher earlier in the year. In March 2023 inflation was at 6.7% and in late 2022 it was above 7%.

This was driven by a number of factors, including rising housing costs, increasing petrol costs, labour shortages and rising food costs.

Inflation means your money may not go as far as it used to.

Inflation forecast for 2024 NZ

Many economists are predicting that inflation will start to gradually decrease at some stage in 2024:

  • The Reserve Bank expects inflation to be under 3% by late 2024.
  • Infometrics chief forecaster Gareth Kiernan expects inflation to reach 3.8% by the end of 2024.
  • Jarrod Kerr, Kiwibank Chief Economist, expects inflation to hit 4% by the end of 2024, then hitting 3% soon after.

ANZ, on the other hand, is more hawkish, expecting that inflation will remain high through 2024. To summarise, price increases should slow in 2024 and 2025 if the majority of experts are correct - but the first six months of 2024, before inflation falls, may be tough for Kiwis.

*We hope this article has provided some helpful information. It's based on our experience and is not intended as a complete guide. Of course, it doesn’t consider your individual needs or situation. If you're thinking about buying or selling a property, you should always get specific advice.


Ben Tutty
Ben Tutty

Ben Tutty is a regular contributor for Trade Me and he's also contributed to Stuff and the Informed Investor. He's got 10+ years experience as both a journalist and website copywriter, specialising in real estate, finance and tourism. Ben lives in Wānaka with his partner and his best mate (Finnegan the whippet).