Reserve Bank governor Adrian Orr delivered a stern message to the nation's price-setters on Wednesday.
When the bank releases a monetary policy statement, it has several audiences to address simultaneously.
One is the general public, who are probably most interested in what the more aggressive tightening it has signalled will mean for their mortgage rates and house prices. Short answer: nothing good.
Then there are the brash young men in dealing rooms, as it is via the wholesale financial markets that the Reserve Bank acts on the world. The forward track for interest rates the bank has now pencilled in is in line with market pricing two weeks ago, even if mounting concerns about spluttering global growth saw some easing since then.
But the most important group whose attention the bank needs to get, and whose expectations and behaviour it needs to influence, are the people who actually set consumer prices.
They are the thousands of people who decide what their businesses will charge for the goods or services they sell.
And the message to them is that the bank is "resolute" in its determination to lean against growth in aggregate demand until it is back in balance with the economy's ability to meet that demand. And right now, that ability is very constrained.
Translated from central bank language, the bank's message to price-setters is this:
Firms face all sorts of supply-side cost pressures, like disrupted supply chains, shipping costs, high global oil prices, Covid-related absences and wage inflation as people trade up in a very tight labour market.
The central bank can't do much about any of that, but it can — and will — affect how many customers are out there for firms to pass those costs on to.
The key message, therefore, is not to assume there will be enough demand to accommodate passing on the cost-push inflation they are experiencing with commercial impunity.
It is not just expenses and the bottom line that businesses need to worry about; it's the top (revenue) line too. At some point, maybe sooner than they think, raising prices becomes counter-productive.
The sooner enough firms get that message, the sooner the value of the dollars in which they, and the rest of us, are paid will stop evaporating.
Inflation is the highest it has been for 30 years. Getting it under control back then was a brutal business.
It took a severe recession as sky-high interest rates drained demand from the economy.
But not only that. The Government's mantra was "monetary policy needs mates" and the mates it provided were the union-busting Employment Contracts Act and the Mother of All Budgets, the social scar tissue from which disfigures the country to this day.
The crucial difference between then and now is that Don Brash had to establish the bank's credibility as an inflation-targeter from scratch to a business community habituated to cost-plus thinking. It was not easy. Hence the importance the bank today attaches to keeping inflation expectations anchored.
When the bank's monetary policy committee weighed up relative potential regrets, it concluded that it would be better to do too much too soon, than too little too late.
Especially if the latter course saw inflation expectations climb and a loss of confidence that we still live in the low-inflation era that was initiated by the Reserve Bank Act of the late 1980s.
The latest monetary policy statement signals a swifter rise in the official cash rate, to a peak just under 4 per cent. That is 60 basis points higher than envisaged just three months ago and nearly 2 percentage points higher than the bank has just raised the OCR to.
It expects high interest rates, lower house prices and falling real incomes to see growth in consumption slow from the second half of this year and fall slightly on a per capita basis over 2023.
It has a slightly more positive forecast for GDP growth in 2023 than the Budget last week but it is still pretty feeble: just over 1 per cent where the Treasury's central forecast is only half that.
With growth lying that low in the water, it would not take much to tip it over into recession.
Asked about the risk of recession Orr said, "Is it in the range of possible outcomes? Of course. [But] we need to slow the growth in demand until it is better aligned with the ability to supply that demand. In the absence of that, inflation will keep going higher."
The statement acknowledges the global threats to both inflation and growth but still forecasts GDP growth in New Zealand's trading partners to hold up above 3 per cent a year for the next three years. Asked how confident he could be of such forecasts, given the recent news flow out of the two largest economies, Orr said there was a huge band of uncertainty around that number.
"China in particular is so important to us and it is going through significant Covid challenges at present, as well as the broader geopolitical issues ... It is a risk for us."
The bank offered scant support for the Opposition's campaign to pin as much blame as possible for inflation and higher mortgage rates on a spendthrift Government.
The statement describes the current level of government spending as "very high" but expects it to ease from the middle of this year. Real government consumption is about 10 per cent higher than it was expected to be at the time of the February statement.
The summary of the monetary policy committee's deliberations says the current level of fiscal spending is contributing to a modest increase in demand, expected to diminish over time as a result of the end to the large, broad-based fiscal support packages the Government delivered during the initial phases of the Covid-19 economic response.
Orr said, "What we saw from the Budget last week was an upward tick in demand pressure coming from the Government in the near term, more than was anticipated from the half-year economic update but relatively small beer compared with all the other drivers going on."
And the bank's chief economist Paul Conway said the Budget's overall impact on the OCR track was negligible.