Christoph Schumacher

The second part is not quite as obvious.

Why on earth would that hit our mortgage rates?

Petrol impacts a lot of other goods.

Everything that's shipped or moved uses up petrol.

So, for example, your groceries, they have to go from the farmer to a packaging plant to a distribution center into our supermarkets.

And all this uses up petrol, for example, or plastics use up oil.

So a whole lot of goods we use every day go up in prices.

now goods going up in prices is what we call inflation inflation is simply measured by a basket of about 600 goods that we use every day and if prices of these go up we measure by how much and that's what we call in inflation now the reserve bank has a very clear mandate to keep inflation between one and three percent so if inflation

gets outside that band, they need to respond.

And the only way they can respond is by increasing their official cash rate.

And that's the rate at which commercial banks can borrow from the reserve bank.

And then the commercial banks put on their profit margins, and that's what you pay as a mortgage rate.

So if the OCR goes up, your mortgage rate goes up.

So now we put it all together.

Petrol becomes more expensive in New Zealand.

This impacts on a whole lot of goods we consume every day.

That drives inflation up.

And we were at 3.1% in quarter one.

We are sitting possibly now at around 4%.

That falls outside the band the Reserve Bank is supposed to keep inflation in.