25 March 2026 – Reserve Bank Chief Economist Paul Conway delivers a keynote speech at the National Financial Advisers Conference 2026 in Auckland, with this year’s focus titled “Purchasing power and the real cost of living in New Zealand.”
In the speech, Mr Conway says New Zealand’s cost-of-living challenge is ultimately about purchasing power – what people can buy with their incomes – not just how high prices are.
He said the inflation surge during and after the pandemic pushed prices sharply higher. While inflation has since eased from the highs of the pandemic, many people are still asking why things feel so expensive. Conflict in the Middle East has added a fresh layer of disruption and uncertainty for Kiwis.
“The cost of living isn’t just about inflation or the price level – it’s about purchasing power,” Mr Conway said. “Even though inflation has fallen from its highs, prices are now much higher than they were before the pandemic.”
Mr Conway said prices in New Zealand are high by international standards. Overall prices here are above the OECD average, and prices for some products – including construction and housing-related services – are among the most expensive in the OECD.
Since the start of the pandemic, overall prices have risen by around 26 percent, while wages have increased by around 32 percent, leaving real wages modestly above pre-COVID levels. People who changed jobs were more likely to get pay increases.
Mr Conway said New Zealanders’ purchasing power – what incomes can buy – is, at best, average compared to the rest of the OECD and below average compared to the 30 higher-income OECD economies New Zealand often compares itself with.
Mr Conway highlighted the critical role monetary policy plays in improving purchasing power. High inflation creates uncertainty and distorts economic decisions. By delivering low and stable inflation over the medium term, monetary policy creates the conditions for sustained improvements in purchasing power.
“Low and stable inflation is critical, but it’s not the whole story,” Mr Conway said. “Monetary policy can anchor prices, but it can’t make New Zealand more affordable by itself. Lasting gains in purchasing power ultimately depend on productivity improvements, which allow wages to rise without pushing prices higher.”
“Productivity growth is the most powerful driver of higher real wages and improved living standards in the long run,” Mr Conway said. “Before the pandemic, purchasing power improved because of better terms of trade and a higher share of the population in work. But lasting improvements in the cost of living require stronger productivity growth.”
Mr Conway said that over recent decades, New Zealand’s productivity performance has lagged that of other advanced economies. Structural policies that support competition, investment, innovation, and international connection are critical in lifting productivity and real incomes over time. Structural policy settings also shape how resilient the economy is to shocks.
He added that stronger productivity growth raises the economy’s speed limit – allowing faster growth without inflation. A more resilient and adaptable economy would be less volatile and reduce the extent to which interest rates need to move to offset shocks and maintain price stability.
Mr Conway concluded that, while monetary policy plays a critical role by delivering low and stable inflation, lasting gains in living standards require structural changes that foster productivity growth. To sustain living standards, structural policy settings must continuously evolve to encourage competition, innovation, investment, technology adoption, and global engagement. That is the structural foundation for lowering the cost of living in New Zealand.
More information
Download the speech – Purchasing power and the real cost of living in New Zealand: https://govt.us20.list-manage.com/track/click?u=bd316aa7ee4f5679c56377819&id=673e8118f1&e=f3c68946f8
LiveNews: https://livenews.co.nz/2026/03/25/economy-why-new-zealanders-still-feel-squeezed-despite-lower-inflation-rbnz/