Decomposing supply and demand driven retail inflation in New Zealand

Lydia Dudson
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Lydia Dudson: Reserve Bank of New Zealand, http://www.rbnz.govt.nz

No AN2024/05, Reserve Bank of New Zealand Analytical Notes series from Reserve Bank of New Zealand

Abstract: • This Note decomposes retail trade inflation into supply- and demand-driven components using the methodology of Shapiro (2024). I find that, on average, the proportion of supply-driven contributions to inflation is higher than demand-driven contributions over the history of the series. • At the onset of COVID-19 in 2020, contributions of demand-side factors were initially much larger than those of supply-side factors. However, since late 2022, supply-side factors have contributed a far greater proportion of year-on-year headline retail trade inflation. • Though the results are based on retail trade inflation, similar insights emerge from decomposing household consumption expenditure inflation. The results are also in line with findings in the international literature based on other inflation measures.

Pages: 17 pp.
Date: 2024-06
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Persistent link: https://EconPapers.repec.org/RePEc:nzb:nzbans:2024/05

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