Inflation & the cost of living
The Consumer Price Index tracks what New Zealand households pay. When inflation runs ahead of wages, purchasing power falls, even if your pay packet grows.
$100 of goods at the start of 2020 costs about $129 today.
Annual inflation rate, 2015–present
Consumer Price Index, year-on-year percentage change, quarterly
Tradable inflation reacts fastest to the exchange rate and shipping costs. Non-tradable inflation is domestic and stickier, and it's the one the Reserve Bank watches most closely for how long high inflation might last. The Ukraine war's shock to global food and energy prices shows up fastest in the tradable line. The dashed band is the Reserve Bank's 1-3% target for the CPI line specifically, not for tradable or non-tradable inflation individually.
Annual inflation is currently 4.1%, down from the 2021 peak of 5.9% and still above the Reserve Bank's 1–3% target band.
For overall CPI inflation, the goal isn't 'as low as possible': the Reserve Bank's legislated target is 1–3% a year. For tradable and non-tradable inflation specifically there's no official numeric target, but persistently high non-tradable inflation is the bigger warning sign since it reflects sustained domestic demand pressure.
The price level: CPI, food and electricity
All three are index points on the same base (June 2017 quarter = 1000). The CPI never went back down: inflation easing means prices rise more slowly, not that they fall.
These are index levels, not rates of change, so none of them fall back down when inflation eases: they just climb more slowly. Watch the slope, not the direction: a flattening line means prices have stopped rising quickly, not that they've dropped. The steepening after the Ukraine war reflects the global spike in energy and food commodity prices that followed.
Consumer prices (CPI) are up +29.2% since the start of 2020. $100 of goods back then costs about $129 today. Food prices have moved +4.3% relative to CPI over the same period.
Each of these should rise slowly and predictably, at roughly the pace of wages - not necessarily flat, but never so fast that a household's pay stops covering the same basket of goods. See the Wages page for how CPI and pay have actually tracked against each other.
What this means
- The CPI measures the change in prices of a fixed basket of goods and services. It does not measure the absolute cost of living, and it does not fall when inflation eases: it rises more slowly.
- Tradable inflation covers goods and services that compete internationally (food imports, fuel, electronics). Non-tradable inflation is domestic (rents, rates, local services) and tends to be stickier.
- The Reserve Bank targets 1–3% annual inflation. Above-target inflation usually brings higher interest rates, which flow through to mortgages and rents.
CPI, annual inflation, tradable and non-tradable inflation, the food price index and the electricity price index are all live from Stats NZ.