Reserve Bank of New Zealand (RBNZ) explanation
- 1980s = annual inflation averaged 11.9% and got as high as 18.9% in June 1987.
- 1989 = the Reserve Bank of New Zealand Act 1989 was assented on 20th December. “Since the late 1980s, we have used monetary policy to achieve low and stable inflation.”
- 1990 = “The first PTA [Policy Targets Agreement], signed in 1990, defined price stability as an inflation rate between zero and 2%, to be achieved by December 1992. We succeeded, achieving and maintaining inflation of around 2% from 1991.”
- 1996 = “The initial objective of keeping inflation between zero to 2% was replaced with a target band of zero to 3% inflation in 1996, allowing for more flexibility in managing trade-offs.”
- 2002 = “In 2002, the target range was narrowed to 1% to 3% inflation over the medium term.”
- 2012 = “Finally, in 2012, an explicit focus was given to the 2% mid-point of the 1% to 3% target range. This was important to anchor inflation expectations to 2%. Without a mid-point target, inflation expectations may float to either end of the 1% to 3% band, depending on the economic outlook. In practice, we were already point-targeting 2% inflation, but formalising it in the PTA had a stronger effect on anchoring inflation expectations.”
- 2018 = “The final PTA, signed in 2018, added an additional policy objective: for us to contribute to supporting maximum sustainable employment (MSE). This was to be pursued alongside the inflation target.”
- Today:
- “The remit for the Monetary Policy Committee (MPC) outlines the objectives that the MPC must use monetary policy to pursue, as set by the Minister of Finance.“
- “Before 1 April 2019, our Governor had sole legal responsibility for monetary policy, and monetary policy objectives were outlined in a policy targets agreement (PTA) with the Minister of Finance.”
- “The Monetary Policy Committee (MPC) uses monetary policy to achieve this dual mandate [inflation + maximum sustainable employment], as set out in its remit.”
- “The current remit requires the MPC to keep inflation between 1% and 3% on average over the medium term, with a focus on keeping future average inflation near the 2% target midpoint.”
- “Since inflation targeting was introduced in New Zealand, consumers price index (CPI) inflation has averaged around 2.2%. This compares with over 11% in the 1980s.”
- Annual inflation for the 2022 June quarter = 7.3% = the highest inflation since 7.6% in June 1990 (32 years ago).
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Full data analysis
Please contact us if you would like the full analysis.
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Notes:
- All data available from Stats NZ Infoshare has been shown from September 1926 to June 2022 (almost 96 years).
- We also added a 4-period moving average (one year worth of quarters) to smooth out peaks and troughs to show the trend over the four most recent quarters.
- We added three key pieces of historical information that significantly impacted inflation:
- The Reserve Bank of New Zealand Act (1989).
- GFC (late 2007/early 2008 start).
- GST increased from 10% to 15% on October 1st, 2010.
- We did not choose any current events because they and their impacts are not as well understood, yet. Instead, we just showed the latest June 2022 inflation figure on the graph.
- We have not included maximum sustainable employment (MSE) data or commentary at this stage, but will look to do a fact on that in the future.
- All numbers are provisional and subject to revision.
Thank you to the Factors who helped pull this together.
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SOURCES:
Stats NZ = https://infoshare.stats.govt.nz/Default.aspx > Economic indicators > Consumers Price Index – CPI > CPI All Groups for New Zealand, percentage change (Qtrly-Mar/Jun/Sep/Dec).
RBNZ information = https://www.rbnz.govt.nz/monetary-policy/about-monetary-policy/inflation-and-maximum-sustainable-employment#:~:text=Under%20the%20current%20Policy%20Targets,the%202%20percent%20target%20midpoint. and https://www.rbnz.govt.nz/monetary-policy/about-monetary-policy/history-of-the-remit-and-policy-targets-agreement.
Reserve Bank Act (1989) = https://www.legislation.govt.nz/act/public/1989/0157/latest/DLM199364.html
This work is based on/includes Stats NZ’s data which are licensed by Stats NZ for reuse under the Creative Commons Attribution 4.0 International licence.
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