Inflation: what if we're targeting the wrong things?

If lack of supply is the issue, how does targeting demand tame inflation? (Image: Port of Lyttelton)

Sat, 20 Aug 2022

At the time of writing, the Reserve Bank of New Zealand (RBNZ) has just announced a 0.5% increase in the Official Cash Rate (OCR) bringing it up to 3% from just 0.25% one year ago. We all know why the RBNZ is doing this as inflation, measured by the Consumer Price Index (CPI), is raging at 7.3% per annum in the year to June 30.Higher interest rates make borrowing money more expensive so people both have less disposable income from higher debt-servicing costs as well as less propensity to borrow and therefore to spend and invest. Tha...

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