Overview
A report by Interest.co.nz argues that while conventional explanations of inflation, cost-push, demand-pull and inflation expectations, are true, they remain superficial. Despite these theories, inflation sits at around three percent per annum in New Zealand, even with a sluggish economy. The article suggests that deeper structural forces are at work, particularly the growth of the money supply through credit creation and central bank liquidity programmes.
Insights
- Over the past five years to September 2025, official CPI-based inflation in New Zealand has averaged 4.6 per cent per annum. Non-tradable goods and services (those produced and consumed domestically) saw inflation averaging 5.2 per cent, while tradable items (imports and export-linked products) averaged 3.8 per cent.
- This pattern suggests much of the pressure is domestic, not imported. That weakens the narrative that external global factors alone are to blame.
- The article points out that since 2020, broad money supply and domestic credit have expanded substantially, roughly 37 per cent over six years, driven in part by central bank liquidity measures (used during the pandemic), and by bank lending to borrowers.
- The expansion of money supply, the author argues, is a key driver behind sustained inflation and price distortions, often invisible when the focus remains solely on demand and costs.
Our Thoughts
This article adds a compelling dimension to the inflation debate by highlighting the role of domestic money creation rather than external shocks or simple supply-demand imbalances. The data on non-tradable inflation underlines that for many goods and services, housing, domestic services, and locally produced goods, New Zealand has been seeing price rises largely driven from within. That raises difficult questions about the efficacy of standard monetary policy, especially when much money is created electronically and credit-driven. Perhaps a focus on money supply alone is also not the full answer. Modern economies are complex, with factors such as credit growth, financial regulation, consumer behaviour and structural rigidities all playing a part. In that sense, the article reinforces the idea that inflation control requires a broad, multifaceted approach. It also serves as a reminder that even seemingly modest inflation rates compound over time and can significantly erode purchasing power and distort economic choices.
Our Questions for You
- Should monetary policy in New Zealand shift focus from just adjusting interest rates to more direct control of money supply and credit growth?
- What role should fiscal policy and regulatory measures play in curbing excessive domestic credit creation?
- How might sustained moderate inflation affect long-term inequality, housing affordability, and savings behaviour in New Zealand?
The content in this blog is intended to provide general insights and should not be regarded as professional advice. Each business situation is unique, and we recommend consulting with a professional for specific guidance. At Black Arrow Business Studio, we specialise in accounting and consulting services designed to support your business’s growth and success. Feel free to contact us for expert advice and customised solutions.
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