What Does Inflation Actually Mean for Your Money?

One way to think about inflation is what it does to the value of your money over time. If you had put $100 in a drawer 5 years ago, in December 2020, that $100 would only buy you $79.80 worth of stuff today. That's because over the last 5 years the cost of living has gone up by 25.3%.

If you had $100 10 years ago and stuffed it in a draw, it would only buy $73.64. And over 20 years, it's worth just $60.19.

In other words, your money has lost roughly 39.8% of its purchasing power over the last 20 years – without you spending a cent.

Looking ahead, if inflation stays at its current rate of 3.1%, the cost of living will double in roughly 23 years. That means something that costs $100 today would cost $200 by around 2048.

At this pace, that's within a single generation. A house, a car, groceries – everything roughly twice as expensive within your lifetime.

This is why holding cash long-term is risky. Inflation doesn't feel dramatic in any single year, but over time it quietly erodes what your money can buy.

Where Is the OCR Headed?

The Reserve Bank publishes an OCR track alongside each Monetary Policy Statement, which shows where they expect the OCR to go over the next few years. It's not a promise. But it's the best signal we have of what the RBNZ is thinking.

They last updated their OCR track on 17th February 2026.

The current OCR is 2.25%. The RBNZ's latest track suggests the OCR will be at 2.52% in a year's time and 2.86% in two years.

That implies 1 - 2 hikes over the next year.

How Does Inflation Compare to the Long-Term Average?

The typical annual inflation rate in New Zealand over the last 20 years has been around 1.9%. That's the median – meaning half of all quarters came in above this number and half came in below.

At 3.1%, inflation is currently running above what's been typical. Prices are rising faster than they have in most quarters over the last two decades.

To put today's number in context, inflation peaked at 7.3% in June 2022 – the highest level in 32 years at the time. Inflation hadn't been that high since 1990.

Since then, inflation is down 4.2% percentage points. That's a significant move, even if it doesn't always feel like it at the supermarket.

It's worth remembering that even when inflation falls, prices don't go backwards. An inflation rate of 3.1% doesn't mean things are getting cheaper — it means they're getting more expensive, just at a slower pace than before.

The table below shows how inflation has tracked over different time periods. The "typical" column shows the median – the middle value across all quarters in that period.

The "compounding" column shows the compounding average.

Together they give you two different lenses: what a normal quarter looked like, and what actually happened to prices overall.

You'll notice the compounding average tends to be higher than the typical rate. That's because extreme spikes – like the post-Covid inflation surge – drag the compounding number up, even though most quarters were much calmer.

What Does This Mean for Property Investors?

Inflation is a double-edged sword for property investors – but one that generally works in your favour if you hold debt.

When inflation is high, it tends to push up both interest rates and rents. Higher interest rates mean your mortgage costs more to service. But at the same time, your tenants are paying higher rents, which helps offset that.

And here's the part most people miss. Inflation quietly makes your mortgage lower. Because if you owe $500,000 on your mortgage today and inflation runs at 3% a year, that debt is worth less in real terms every single year. So the real (inflation-adjusted) value of your mortgage goes down.

When inflation is low, the picture shifts. Lower inflation gives the Reserve Bank room to cut interest rates, which reduces your borrowing costs and tends to push property prices up. That can make you wealthier.

Either way, inflation tends to have a silver lining for property investors who use debt. High inflation erodes your mortgage while pushing up rents. Low inflation brings cheaper borrowing and rising asset prices.

The investors who struggle most with inflation are the ones sitting in cash – because as we showed earlier, cash tends to lose value over time.