RBNZ Faces Inflation Challenge from Non-Competitive Sectors

New Zealand households have faced large cost increases in recent years due to administered charges and non-competitive sectors, such as electricity charges and local council rates.

These costs have continued for an extended period, making it difficult for the Reserve Bank of New Zealand (RBNZ) to look through them. Even before the spike in oil prices, the RBNZ had little headroom to absorb upside inflation surprises.

The ongoing firmness in domestic inflation is expected to be higher than the RBNZ's assumed target over the longer-term. This is due to continued large increases in administered costs, such as local council rates, which are less responsive to changes in interest rates.