One word. Inflation. Inflation refers to a generalised increase in the price of goods and services in the economy. Essentially, inflation means the cash you have today won't be able to buy as much in the future. The Reserve Bank of New Zealand (RBNZ) sets interest rates to achieve low and stable inflation, so that consumer prices only rise 2% on average each year. But currently, annual inflation is 7.2% – nearly the highest since the 1990s. Why? One other word. COVID.
The pandemic brought the world to a screeching halt. However, the economic responses in many countries, including New Zealand, meant that most household incomes remained broadly intact. But because we couldn’t spend during lockdowns, household savings surged.
Then, as countries opened up, consumer demand for goods surged, straining COVID disrupted supply chains, which couldn’t keep up. This, paired with global issues like the conflict between Russia and Ukraine, has driven up prices around the world. Domestically, the housing boom over 2021, and surging wage growth from the tight labour market, have further contributed to the high-inflation environment.