Consumer price index

IBISWorld forecasts the CPI to increase by 4.0% in 2023-24, to reach 1,114.2 index points. Supply chain disruptions that have increased cost of inputs, combined with rising oil prices, contributed to higher inflation over the two years through 2022-23. In particular, rising retail petrol and diesel prices increased transport costs, and ultimately drove up the CPI. The Reserve Bank of New Zealand (Te Putea Matua) (RBNZ) has raised the cash rate, in an attempt to maintain price stability and facilitate sustainable employment. Higher interest rates will make it more expensive to borrow, while restricting spending on goods and services. This has helped limit growth in spending despite strong population growth driving up aggregate demand. The RBNZ has stated the difficulties that strong population growth has created in limiting inflation, and despite a cooling labour market is still among the most hawkish reserve banks in maintaining or even potentially further increasing the cash rate.

The aim of the Reserve Bank of New Zealand (RBNZ) inflation-wise is to keep future CPI inflation outcomes between 1.0% and 3.0% on average over the medium term. Furthermore, there is a focus on keeping average inflation near the 2.0% target midpoint. The RBNZ tries to accomplish that goal by using a number of monetary policy instruments, such as through setting the cash rate. The RBNZ will cut interest rates to drive economic growth and employment. This makes it less expensive to borrow while increasing the money supply. The RBNZ has cut the cash rate five times since April 2016, from 2.25% to its lowest position of 0.25%. However, the RBNZ has been increasing the cash rate since October 2021, reaching 5.5% in May 2023, it's highest rate in approximately 15 years, to constrain spending and bring inflation back within its target range.

New Zealand's inflation rate has been high over the past five years, by historical standards, almost double the RBNZ's average inflation target. Supply chain disruptions, and a tight labour market have put pressure on prices, and the RBNZ, like many reserve banks around the world, has been required to perform some of the most rapid rate increases in decades, after a near-zero cash rate during the pandemic. The labour market is now starting to cool with job ads falling below pre-pandemic levels in 2023-24, and labour supply boosted by strong population growth post-pandemic. Overall, IBISWorld forecasts the CPI will increase at a compound annual rate of 3.9% over the five years through 2023-24.