Finance Minister Grant Robertson has described the highest inflation increase in a decade as "a problem of growth", brushing off concerns that Labour policies are forcing up prices.
"New Zealand is in a strong position economically. We have low unemployment, we have good levels of growth; there are now some things coming through that are the 'problems' of growth but there are parts of our system designed to manage that," Robertson said on Friday.
His comments came after Stats NZ reported that annual inflation had increased to 3.3 percent, the biggest increase in nearly 10 years, which it said was driven by higher prices for new housing and petrol.
ASB senior economist Mark Smith said the inflation figures were "much, much stronger" than the bank had expected. He said it was driven by "the perfect storm of rising costs, stretched capacity and demand-side pressures".
Inflation is a term used to describe the rise of average prices. It essentially means that money is losing its value, and the underlying cause is usually that too much money is available to purchase too few goods and services, with demand outpacing supply.
The blame has been pointed at the Reserve Bank, which has been doing what's described as 'money printing' throughout the COVID-19 pandemic, to stimulate the economy through what's been a global economic slump.
The Reserve Bank's economic stimulus has gone hand-in-hand with record low interest rates, which is partly to blame for the meteoric 30 percent annual rise in house prices.
On Wednesday, the Reserve Bank agreed to reduce economic stimulus by winding up its programme of bond buying, or 'money printing'. But, it kept the official cash rate, or interest rates, at the current 0.25 percent.
Smith expects this to change in the coming months, because despite many countries across the globe struggling economically due to COVID-19, New Zealand's lack of the virus has allowed us to prosper.
"What I've seen is that we've managed to come through the biggest shock to the economy in many, many decades strongly, with high levels of employment, with resource consents increasing beyond where we've seen in the past," Robertson said.
"I think the economy is doing well. I think New Zealanders have worked hard for that.
"One of the consequences at the moment, given the fact we're recovering in such a constrained environment, is that we're seeing some inflation as a result of that. But I think New Zealanders can be proud of where the economy has reached."
National MP Andrew Bayly says a combination of poor policy, direct tax increases and economic mismanagement has seen the cost of living soar.
Bayly pointed to rents increasing by around $100 since the Government came into power, soaring house prices, fuel taxes going up 28 cents per litre in Auckland, and removing tax deductions on interest costs for rental properties.
ACT MP Damien Smith also blamed Labour, saying it was "no wonder the very areas the Government has piled taxes on are driving the largest increase to inflation in 10 years".
Bayly claimed the average Kiwi family is about $9000 worse off, or more than $170 a week, under the Labour Government. But Robertson doubts his findings.
"I'd be very interested in picking apart those numbers when I've got a bit more time," Robertson said in response.
"What I do know is we've got tens of thousands more New Zealanders in work this year, we've got an unemployment rate down to 4.7 percent, we've seen our GDP recover and so activity is where it was pre-COVID.
"The New Zealand economy is going well. There are always cost of living pressures in the economy - it's part of the way the economic cycle works.
"I believe we've got a significant series of investments that have made a big difference in New Zealanders' lives and the monetary policy system we have will now respond to that."
The latest update from the Treasury shows the Government is more than $100 billion in debt, which as a percentage of GDP is 31 percent. There's lots of money going around, but due to the borders being shut, there's also a shortage of workers and products.
Building consents are at record highs, up 17 percent on last year. But Smith says soaring construction costs reflect the booming housing market and capacity constraints in the construction sector.
Robertson says he has no plans to reconsider fiscal stimulus, even if inflation keeps rising.
"Most of that is already deployed. I think it's important that the confidence and the certainty that we've given to the New Zealand economy continues."