Figure 1 – New Zealand CPI Inflation Rate (annual percentage change)

Extract A

High interest rates cool housing and consumer spending

The Reserve Bank of New Zealand (RBNZ) has maintained a highly restrictive monetary policy stance, holding the Official Cash Rate (OCR) at 5.5% to combat persistent consumer price pressures. This aggressive tightening cycle has significantly increased mortgage interest rates, placing a heavy burden on highly leveraged households. Consequently, discretionary consumer spending and retail sales volumes have contracted.

At the same time, a strengthening of the New Zealand Dollar (NZD) against the currencies of its major trading partners has lowered the cost of imported refined fuel and consumer electronics. Economists note that while this tight policy has been successful in pulling inflation back toward the RBNZ's 1–3% target band, it has also heightened the risk of a technical recession as business investment softens.

Extract B

Shifting tides in agricultural inputs and Pacific freight

New Zealand's economy has also benefited from a dramatic easing of external cost pressures. During 2022, global disruptions pushed the prices of crucial agricultural inputs, such as imported animal feed and fertilizers, to record levels, which squeezed local farmers and drove up domestic food prices. By late 2024, these key agricultural commodity prices had normalized.

Furthermore, ocean freight rates along critical Asia-Pacific shipping routes—such as those connecting Shanghai to Auckland—have fallen back to their pre-pandemic baselines. The resolution of maritime congestion has reduced the lead times and costs of importing components for New Zealand manufacturers, allowing them to lower their wholesale prices and pass these savings on to consumers.

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