Business Journalist Bernard Hickey thinks the recovery from Cyclone Gabrielle will grow New Zealand's economy while also fuelling inflation.
The rebuild spending will be reflected as an extra 1 percent of GDP.
"More growth and more inflation," is what New Zealand should expect, he told Newshub Nation.
Hickey thought the Reserve Bank's decision to push ahead with its 50 basis point rate hike was the correct call "if they want to retain the confidence of the markets and reinforce that they are really serious about inflation."
"They've basically said 'calm the farm, we're going to work through this inflation shock'."
Hickey believes that, because the economy is already under strain, the government must recoup the money it is spending on cyclone recovery.
"This could be through tax increases or reprioritising spending elsewhere."
Deciding where they find this money is "going to be a tough one," he said.
Another challenge for the government Hickey identified is minimising the inevitable interest rates rise that arise from the cyclone recovery bill, especially with the election later this year.
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