Reserve Bank of New Zealand speech says cost of living pressures reflect purchasing power and require stable inflation and stronger productivity

In a speech, the Reserve Bank of New Zealand’s Mr Conway framed New Zealand’s cost of living challenge as primarily a purchasing power issue, arguing that monetary policy supports living standards by delivering low and stable inflation over the medium term but cannot make the economy more affordable on its own. He linked current pressures to the inflation surge during and after the pandemic, noting that while inflation has eased from its highs, the price level remains much higher than before the pandemic and that conflict in the Middle East is adding disruption and uncertainty. He said New Zealand’s overall prices are above the OECD average, with some items including construction and housing-related services among the most expensive in the OECD. Since the start of the pandemic, overall prices have risen by around 26% and wages by around 32%, leaving real wages modestly above pre-COVID levels, with people who changed jobs more likely to receive pay increases. He also said New Zealanders’ purchasing power is at best average across the OECD and below average compared with the 30 higher-income OECD economies New Zealand often benchmarks itself against, and argued that lasting gains depend on productivity improvements supported by structural policies that promote competition, investment, innovation, international connection, technology adoption and global engagement.