Axiome Quarterly Q3 2021

One of the main jobs of a central bank is to control inflation through monetary policy with many of them having explicit targets. The Reserve Bank of New Zealand, for example, is committed to keeping inflation within a 1 -3% band. After the runaway inflation of the 1970s, the focus on reining in inflation had great success with the forecasts of the “death of inflation”. Throughout the 1990s and most of the 2000s, inflation has looked fairly well under control. Recently, however, the numbers are telling a different story and households are beginning to feel the sting of higher housing costs, and food and fuel prices.

In New Zealand, these rises in prices pushed the consumer price index (CPI) 1.3% higher in the three months ended June. On an annual basis, inflation surged to 3.3%, the highest annual rate since late 2011.