RBNZ: Firms react to recent inflation

The Reserve Bank (RBNZ) has released new research showing that businesses are more influenced by recent inflation when setting prices than by expectations of future inflation. 

Understanding how firms adjust prices is key for forecasting inflation and for the Monetary Policy Committee’s (MPC) decisions on the official cash rate (OCR). 

“When explaining and forecasting domestic or non-tradables inflation, modelled measures of price-setting behaviour perform better than survey-based measures,” said Analytical Note authors Ross Kendall and Marea Sing. 

Modelled measures outperform surveys 

The study compared survey-based measures of price-setting with modelled measures that rely on past inflation outcomes. 

• Modelled measures more sensitive to recent inflation provided the most accurate forecasts for domestic and non-tradables inflation. 
• Businesses are more likely to adjust prices based on inflation they’ve experienced recently rather than inflation from several years ago. 

The research found that recent inflation trends influence price-setting more strongly than expectations of future inflation, guiding how persistent inflation may be. 

Small differences but all measures matter 

While modelled measures performed better, RBNZ noted that the differences among methods were not significant. 

“These judgements about price-setting behaviour are particularly important following episodes of high or low inflation, as they influence how persistent the effects of these periods will be and how quickly inflation is likely to return to the 2% target midpoint,” the authors said. 

Because price-setting behaviour can evolve over time, the central bank advises monitoring a range of measures to inform policy. 

The findings will help MPC assess inflation persistence and determine how quickly inflation will return to the midpoint of its 1-3% target range. 

RBNZ opens cash use survey and HVCS consultation 

RBNZ has also opened the Cash Use in New Zealand Survey, running until 10 October 2025, to track how Kiwis use, access, and store cash. 

“As the steward of money and cash for New Zealand, we need to ensure that New Zealanders can access, use, and bank cash. This survey enables the RBNZ to effectively monitor the cash system,” said Ian Woolford (pictured left), director of money and cash. 

The survey, now moving to an annual cycle, will support RBNZ’s cash system redesign, with results due Q1 2026. 

The bank also began consulting on designating the High Value Clearing System (HVCS) under the Financial Market Infrastructure Act 2021. 

“Every month more than $420bn of transactions are cleared using HVCS, which is more than New Zealand’s GDP – representing a significant value of payments in New Zealand,” said Scott McKinnon, director of specialist supervision. 

Designation would give RBNZ, which recently unveiled a new tool to track financial exclusion, greater oversight and legal powers to protect critical payment infrastructure. 

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