The Forward View: Inflation is slowing but is still yet to be tamed

The Monetary Policy Committee today increased the Official Cash Rate (OCR) from 4.25 percent to 4.75 percent. The Committee agreed that the OCR still needs to increase, as indicated in the November Statement, to ensure inflation returns to within its target range over the medium term. While there are early signs of price pressure easing, core consumer price inflation remains too high, employment is still beyond its maximum sustainable level, and near-term inflation expectations remain elevated. Cyclone Gabrielle and other recent severe weather events have had a devastating effect on the lives of many New Zealanders. It is too early to accurately assess the monetary policy implications of these weather events, given that the scale of destruction and economic disruption are only now becoming evident. The timing, size, and the nature of funding the Government’s fiscal response are also yet to be determined. The Committee’s current assessment is that over coming weeks, prices for some goods are likely to spike and activity will be weaker than previously expected. Export revenues will be negatively impacted. Monetary policy is set with a medium-term focus, and the Committee will look through these short-term output variations and direct price effects. In time, the infrastructure and community rebuild will add to activity and inflationary pressures, especially post at 8:02pm: RBNZ MINUTES: MEMBERS NOTED THE RAPID PACE AND EXTENT OF TIGHTENING TO DATE IMPLIES MONETARY POLICY IS NOW CONTRACTIONARY - https://t.co/wXVagA44VK post at 8:03pm: RBNZ: COMMITTEE MEMBERS AGREED THAT MONETARY CONDITIONS NEEDED TO TIGHTEN MUCH MORE. post at 8:04pm: RBNZ MINUTES: AS IN THE NOVEMBER STATEMENT, THE CENTRAL PROJECTIONS SHOW A DECLINE IN GDP THIS YEAR post at 8:04pm: RBNZ: WHILE THERE ARE EARLY SIGNS OF LESSENING PRICING PRESSURES, CORE CONSUMER PRICE INFLATION REMAINS EXCESSIVE.

The Committee agreed that the OCR still needs to increase, as indicated in the November Statement, to ensure inflation returns to within its target range over the medium term. While there are early signs of price pressure easing, core consumer price inflation remains too high, employment is still beyond its maximum sustainable level, and near-term inflation expectations remain elevated. Cyclone Gabrielle and other recent severe weather events have had a devastating effect on the lives of many New Zealanders. It is too early to accurately assess the monetary policy implications of these weather events, given that the scale of destruction and economic disruption are only now becoming evident. The timing, size, and the nature of funding the Government’s fiscal response are also yet to be determined. The Committee’s current assessment is that over coming weeks, prices for some goods are likely to spike and activity will be weaker than previously expected. Export revenues will be negatively impacted. Monetary policy is set with a medium-term focus, and the Committee will look through these sho post at 8:04pm: THE RBNZ STILL EXPECTS THE CASH RATE TO PEAK AT 5.5%.