Drivers include high wage growth, construction costs and government spending, as well as a tourism sector in recovery but still constrained by labour shortages. These factors feed into businesses' expectations, which drive their pricing.
So, the RBNZ sees itself pulling one more whopper 50-point hike out of the bag than expected in May, bringing the OCR to a peak of 4.1 per cent, rather than 3.9 per cent, by June 2023.
It also sees the OCR hovering at around this level, or just below, for most of 2024. The OCR hasn't been as high as 4 per cent in 14 years.
Hiking interest rates to eat into people's disposable incomes and cool the economy is expected to orchestrate job losses.
In May, the RBNZ expected the unemployment rate to hit 4.8 per cent by mid-2025. It now sees it getting as high as 5 per cent.
The RBNZ doesn't forecast a recession (two quarters of negative growth in a row), but does see gross domestic product (GDP) growth completely flatlining in June 2023, before rising by a measly 0.1 per cent the following month.
The Monetary Policy Statement reflects the RBNZ sticking to its position that it will do what it takes to cool the economy to the extent inflation falls.
This stance comes as it has faced criticism, including from a recent former governor, Graeme Wheeler, that the central bank is getting distracted by issues like climate change and the Māori economy, rather than focusing on its core job of controlling inflation.
Asked in a press conference whether all the criticism had taken a toll on him, and whether he felt like he had been scapegoated, RBNZ Governor Adrian Orr suggested he had taken the feedback on board.
He characterised "all the recent stuff" as "timely", "because it is useful to feed into our monetary policy review".
Orr also said the RBNZ is a "learning institution".
"I don't like it when it's claimed we aren't a learning institution. We're spending an enormous amount of time being incredibly transparent about how we're adapting and evolving," he said.
Asked whether he would seek reappointment when his term as governor expires in early 2023, Orr didn't give anything away.
"I don't think that's something we should talk about," he said.
"I don't want to talk about it."
Coming back to the economics, financial markets didn't see the RBNZ being as hawkish in its press conference as it was in its statement.
Asked whether the RBNZ got close to lifting the OCR by 75 points, Orr said, "No, we didn't … We find that the 50-basis-points moves we've made had been very orderly, well signalled, and sufficient for us to achieve what we're after."
Orr also made the point other central banks have lifted interest rates more aggressively because they started tightening monetary policy later than the RBNZ did.
Likewise reflecting a less hawkish tone, Orr said he was unconcerned about banks cutting some longer-term interest rates.
Rather than take the opportunity to pressure banks to keep rates elevated, he noted the OCR has a greater effect on shorter-term interest rates, and banks may be adjusting some of their longer-term rates to attract customers as the housing market cools.
On the issue of elevated government spending contributing towards higher inflation, Orr said, "I would put a caution there that government can't and shouldn't stop all of its spending."
He said much of the spending was on "automatic stabilisers" - spending on things like welfare, designed to offset fluctuations in the economic cycle - which are linked to inflation.
"Governments will have to continue doing what they're doing," Orr said.
