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New Zealand is an expensive country, with many products priced well above the OECD average, Reserve Bank chief economist Paul Conway told the National Financial Advisers Conference in Auckland. Essentials such as construction services, household utilities, and some food items rank among the most expensive in the OECD.
Conway highlighted inflation as a major economic disruption over the past few years, especially during the pandemic, when high demand and limited supply pushed prices up at the fastest pace in decades. Despite inflation now being closer to the Reserve Bank’s target, many New Zealanders still feel the pinch of rising costs.
Since the start of the pandemic, overall prices have risen by 26 percent, while wages have increased by 32 percent. However, wage gains were uneven, with those changing jobs often seeing higher increases. Certain unavoidable household essentials, council rates, insurance, construction services, and key food items like meat and butter, have consistently risen over the past five years. This has amplified the sense of a “cost-of-living crisis.” Recent years have also seen large jumps in gas, insurance, and rates. Tobacco products remain among the most expensive in the OECD, while milk, cheese, eggs, and fruit are well above average. Seafood, clothing, and meat, by contrast, are slightly below average.
Conway noted that construction services in New Zealand are the highest priced in the OECD, more than double the average. Overall “capital formation,” which includes machinery, equipment, and construction, is 70 percent above the OECD average. Housing services and utilities are also the costliest. While low and stable inflation supports living standards, it alone cannot make New Zealand affordable. Monetary policy, including the official cash rate, anchors prices but does not directly increase affordability. Inflation ended 2025 slightly above the Reserve Bank’s 1–3 percent target band and may remain elevated due to global shocks such as the Middle East conflict. What truly matters for households is purchasing power.
Before 2020, New Zealand wages grew faster than the OECD average due to strong employment and favourable trade terms. Today, wage purchasing power is about average across all 38 OECD countries but roughly 20 percent below the average of more advanced economies. Sustained improvements in purchasing power require productivity growth. Real per capita income in New Zealand, which had climbed to over 95 percent of the OECD average by 2020, has since fallen to around 90 percent. The gap with Australia has widened, and real incomes have not kept pace with OECD peers since the pandemic. Wages have declined less than income overall, leaving them at best average, but about 20 percent below OECD averages when compared to the 2010 benchmark of 30 member countries.
Conway emphasized that productivity growth is the single most important factor in improving real incomes and purchasing power. New Zealand’s productivity lags behind other OECD economies, fell sharply after the global financial crisis, and turned negative after the pandemic. Low and stable inflation supports growth, but structural improvements are essential for sustained gains in purchasing power.
He warned that a more fragmented and unpredictable global economy increases the stakes for resilient and adaptive policies. Geopolitical risks, shifting trade, capital, and labour flows, increased government intervention, and weakening rules-based global integration all expose New Zealand to shocks beyond its control.
Sustaining living standards requires structural policy settings that build resilience, flexibility, and adaptability in the economy. A more resilient economy would reduce the need for aggressive monetary policy to stabilize inflation as external shocks occur. While monetary policy is crucial for economic stability, it cannot resolve the cost-of-living crisis on its own. Low and stable inflation creates conditions for prosperity but does not generate it directly.
Improving household purchasing power requires stronger productivity. Productivity gains drive real wage growth, while competitive markets help contain price rises. Higher productivity increases the economy’s “speed limit,” allowing faster growth without triggering inflation. A flexible, resilient economy would also allow monetary policy to respond less aggressively when shocks hit, making long-term gains in living standards more achievable. -TIN Bureau