What causes inflation?

Posted on December 18, 2025 by Keith Woodford

[This article was first published at https://www.interest.co.nz on 7 December 2025]

Inflation lies at the heart of economic thinking and decision making. What are the fundamental causes? Is inflation distorting our economy? Can we do better? The new Governor of the Reserve Bank seems to think we can do better and plans a ‘laser focus’ on inflation.

It is widely recognised that inflation can be either cost-push or demand-pull. It is also widely accepted that inflation expectations influence both purchase and pricing decisions, with this feeding back at a macro level to self-fulfilment of the expectations.

These explanations, despite being correct, are superficial.

Simply knowing that the above explanations are true, in itself does very little to help policymakers prevent inflation. If the solutions were simple, we would not be in our present New Zealand situation with inflation at three percent per annum despite a stagnant economy.

Three percent per annum of compounding inflation does not necessarily sound very much. However, it means prices double every 24 years. In 100 years, prices increase 19-fold.

 In the last five years since September 2020, our inflation rate, using official CPI data (Reserve Bank series M1), has actually averaged 4.6 percent per annum. This is despite the Reserve Bank mandate to keep inflation between one and three percent in the medium term, with a specific focus on the midpoint of two percent. Continue reading →

Posted in macroeconomics, The economy | 1 Comment

North Island sheep farms are more beef than sheep

Posted on November 18, 2025 by Keith Woodford

This article started in my mind as an article on New Zealand’s sheep and beef farms. But once I started, I was quickly self-reminded that there are fundamental differences between the islands.

In the North Island, what were traditionally thought of as sheep farms, are now earning more from beef than sheep. In contrast, in the South Island sheep still reign supreme on non-dairy pastoral land.

So, this article focuses on the North Island, with the South Island left for another time.

Industry-good organisation Beef+Lamb has three categories of sheep and beef farms in the North Island. These are labelled Class 3, 4 and 5 in ascending order of farm intensity. As for where Classes 1 and 2 have got to, they are the least intensive South Island pastoral farming systems. Likewise, Classes 6,7 and 8 are the most intensive systems, also all in the South Island.

The analysis that follows draws on data from the Beef+Lamb Survey of sheep and beef farms through to and including 2024/25 data, plus early estimates for 2025/26 as at 11 September 2025.    Continue reading →

Posted in sheep and beef farms, Uncategorized | 6 Comments

Fonterra has always struggled with dairy consumer brands

Posted on November 4, 2025 by Keith Woodford

Fonterra’s sale of its consumer brands to an overseas owner marks the end of an era.

There was always a structural tension within the co-operative between the ideal business structure for ingredients versus consumer brands. Perhaps it was inevitable that there would be an eventual parting of the ways.

Whether or not the sale to French company Lactalis of the consumer-focused division for $4.4 billion is the best outcome for New Zealand is a moot point. My own preference would have been a public company headquartered in New Zealand, with Fonterra retaining a minority interest. Continue reading →

Posted in Agribusiness, Fonterra, Uncategorized | 9 Comments

How long can sheep and beef returns stay in the sweet spot?

Posted on October 31, 2025 by Keith Woodford

This year is a remarkable time for sheep and beef farms, with record prices for both lamb meat and beef. Farm-gate prices are up in the order of 30 percent since 2024 and in some situations even more. It is a sweet spot that won’t be maintained.

I know of no-one who foretold the current sweet spot. It remains somewhat of a puzzle to understand and put the causes in some sort of order.

One but only one of the causes is the decline in the New Zealand dollar.  Currency rates are volatile and trends depend very much on the starting point. By my reckoning, the New Zealand dollar has dropped on average around five percent over the last year relative to the US dollar.

Depreciation against the euro has been about nine percent over this time. Continue reading →

Posted in sheep and beef farms, Uncategorized | 8 Comments

The price of sheep and beef land makes no economic sense

Posted on September 29, 2025 by Keith Woodford

The price of sheep and beef land is not sustainable. It makes no economic sense. The price has to crash both in real and nominal terms. The only question is when will this crash occur.

There are three linked factors contributing to why the price is unsustainable.

The first factor of fundamental importance is that is it not possible for most farms to pass through the generation-succession process at current prices.  There is no chance of one sibling buying out other siblings unless there are substantial off-farm assets to also be divided up. Even if there is only child, funding a retirement lifestyle for the older generation is problematic.

The second fundamental factor as to why the price of sheep and beef land has to crash is that the average sheep and beef farmer is now approaching sixty years of age. We don’t know the exact figure, but we do know with certainty that sheep and beef farmers are getting older. Continue reading →

Posted in Meat Industry, Rural Finance, sheep and beef farms, Uncategorized | 15 Comments

Transforming New Zealand’s sheep and beef industries

Posted on July 31, 2025 by Keith Woodford

A recurring theme in articles I have written over the last year has been the need for more exports. Right now, our exports exceed our imports, with this occurring in each of the last five months. This is good news, but running a surplus of exports versus imports for a few months is not enough. We also have to pay for deficits in our invisibles, plus we have big overseas interest bills on all of our historical overseas borrowings.

The latest current account deficit is $24.7 billion per annum as at 31 March 2025. This has had to be financed by an equivalent inflow of investment capital from overseas. This deficit is a measure of the extent to which our international expenditure on consumption items, including imports of goods, plus invisibles and interest on foreign debt, exceeds our income.

A key measure of the extent of the problem as measured by World Bank data is that New Zealand’s exports have declined from 36% of GDP in 2000 to 24% in 2023.  This percentage is now well below both the OECD and global average of 29% of GDP. We are lagging badly. Continue reading →

Posted in Uncategorized | Tagged | 4 Comments

Constructs of a population policy

Posted on July 29, 2025 by Keith Woodford

Some weeks back I wrote that New Zealand needs a population policy. However, I purposely did not say what that policy should be. Instead, I focused on identifying the unplanned population bulges we are currently creating, focusing particularly on the current bulge of 30-35-year-olds who will eventually make the current cohort of retired boomers look small.

I particularly wanted to dispel the false notion that we have declining cohorts of working-age people.  It is simply not true.

Accordingly, in this article I want to focus on what a sensible population policy might look like. Inevitably that means introducing some value judgements as to what is the right thing for New Zealand to do. Continue reading →

Posted in macroeconomics, The economy, Uncategorized | 7 Comments

Forestry can be a big plus for sheep and beef farmers but there are caveats

Posted on July 20, 2025 by Keith Woodford

These are good times for sheep and beef famers with record product prices for meat. That is precisely why now is the time for sheep and beef farmers to be looking again at farm forestry. It is always easier to diversify when existing business activities are providing a profit.

The Climate Change Response (Emissions Trading Scheme—Forestry Conversion) Amendment Bill is currently working its way through Parliament. As I write this article, it is at the Select Committee stage.

I expect changes to be made before the bill  becomes enacted later this year, with the current plan being for an October enactment, but one key message in relation to purpose is clear. This is a bill that is aimed at sheep and beef farmers, giving them options but supposedly keeping the big and largely overseas-owned forestry corporates at bay. Continue reading →

Posted in Carbon Farming, forestry, sheep and beef farms, Uncategorized | 2 Comments

New Zealand needs a population policy

Posted on July 14, 2025 by Keith Woodford

In a recent article I wrote how New Zealand’s resident population was increasing at a faster rate than either GDP or exports, with this contributing to a recent decline in per capita GDP. I suggested that New Zealand needed a population policy.  Here I dig deeper into the structure of our New Zealand population and present some surprising findings.

Quite simply, New Zealand has a bulge in its population with large numbers of people in the 30 to 40-year age bracket. The bulge is due to inward migration. Continue reading →

Posted in Uncategorized | Tagged , , , | 12 Comments

New Zealand’s decline in per capita economic growth is fundamental and long-term

Posted on June 2, 2025 by Keith Woodford

New Zealand’s per capita decline in economic growth rate is more than just a phase of the economic cycle. The per capita reduction in growth is now structural.  The average Kiwi has made minimal progress in his or her income-earning ability since just before COVID struck in early 2020. Per capita exports have declined because of big population increases, such that there has been no overall increase in per capita export income since 2014.

In this article I focus on data that tell us what has been happening. I also focus on data that tell us that the future is going to be difficult. The data I use come from the Reserve Bank (HM5 series) and from interrogating Infoshare at Stats NZ.

My starting point in researching for this article was to look at what has been happening to gross domestic product (GDP) over the last 35 years since 1990, measured in inflation-adjusted terms. Continue reading →

Posted in macroeconomics, The economy, Uncategorized | 23 Comments