We can't fix supply issues
We can’t change what’s happening overseasSupply issues
If a major storm affects dairy farms or transport networks, cafés can end up paying more for things like milk, deliveries, or other supplies. When it costs more to make your coffee, some cafés may raise their prices to cover those costs.
What happens overseas affects prices here
Coffee beans are imported, so shipping costs due to higher oil prices can affect the price you pay.
We can’t set different interest rates for different groups of people
Inflation doesn’t feel the same for everyone. If you’re renting or studying, the cost of things like rent and your daily coffee might be taking a bigger bite out of your budget than they are for someone else.
But we set interest rates for New Zealand as a whole—we can’t set different rates for different groups or regions.
Short-term surprises
A storm, flood, or cyclone can temporarily affect milk production, transport, or food supplies. If your regular coffee suddenly costs more for a few weeks, that could be because of a short-term disruption.
Interest rates take time to influence the economy, so we can’t prevent these temporary price spikes.
Raise or lower the OCRThink of the OCR like driving a car.
- If we put our foot down on the brake (raise the OCR), borrowing is more expensive and saving becomes more attractive. Households and businesses tend to spend less and save more.
- If we put our foot down on the accelerator (lower the OCR), borrowing is cheaper and saving becomes less attractive. Households and businesses tend to spend more and save less.
When we raise the OCR, borrowing usually becomes more expensive and saving becomes more attractive. Because of this, people may spend less on things like eating out, renovating their homes, or getting services such as haircuts. People who can afford to may also choose to save more.
Businesses can be affected too. When borrowing costs more, businesses may delay investing.
When households and businesses spend less, demand in the economy slows down. This means businesses are less likely to raise their prices, which helps slow inflation.
Higher interest rates can also increase the value of the New Zealand dollar.
When the New Zealand dollar is worth more, it becomes cheaper for us to buy goods and services from overseas. Cheaper imports can help reduce inflation.
A higher exchange rate can also make New Zealand exports more expensive for overseas buyers. This can reduce export earnings and spending within New Zealand, which can also help ease inflation pressures.
Raising the OCR can also help keep inflation expectations low. If people think inflation will stay low, businesses are less likely to raise prices too quickly and workers are less likely to ask for large pay rises.
Why all this matters for our monetary policy decisions
While we can’t, and wouldn’t want to, control the price of your morning coffee, we can influence the bigger picture.
By using the tools available to us, we aim to keep inflation low and stable over time.
This helps make prices more predictable, so it’s easier for people and businesses to plan ahead.
When inflation is under control, your money is more likely to hold its value over time.
How does the OCR actually get decided?
2 min read
Ever wondered who decides the OCR and how they do it? Take a look at what the Monetary Policy Committee considers.
How we understand what’s happening in the economy
2 min read
Prices, jobs, spending, interest rates. See how we use these to understand what's happening in the economy.
Spotting inflation: from prices to portions
3 min read
Inflation can pop up in sneaky ways, from pricier fish and chips to smaller scoops for the same price.