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Inflation and maximum sustainable employment are our dual mandated objectives for monetary policy.

Our dual mandate

Since the late 1980s, we have used monetary policy to achieve low and stable inflation. In 2018, an amendment to the Reserve Bank of New Zealand Act (1989) added supporting maximum sustainable employment to our mandate alongside inflation.

Find out about maximum sustainable employment

The Monetary Policy Committee (MPC) uses monetary policy to achieve this dual mandate, as set out in its remit.

What is inflation?

Inflation occurs when prices of a range of goods and services rise on average. It means that money’s buying power is decreasing, although some wages may rise faster than inflation.

In general, inflation occurs when demand for goods and services in the economy is outpacing supply. This leads to widespread shortages of labour and materials. For example, when lots of people want to build a house, it becomes hard to source materials and construction workers, so building costs increase.

Businesses can charge higher prices for the same goods or services, as long as consumers are willing to pay more.

Inflation can also be caused by a rise in the price of imports, such as oil.

Explaining inflation

Former Chief Economist John McDermott explains how inflation is measured and how it affects everyday life. He also explains the importance of maintaining price stability.