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9 Jan 2015
New Zealand may see sub-1% inflation till early 2016 – BNZ
FXStreet (Barcelona) - According to BNZ, New Zealand might see annual inflation staying below 1.% until early 2016 which might make it difficult for the RBNZ to raise rates till that period.
Key Quotes
“New Zealand’s situation is particularly enlightening. We have an economy that is operating at or above potential and is set to stay that way for some time. Yet CPI inflation is absent, partly because of the strength in the currency and partly because of falling oil prices, but, more generally, because it’s the global output gap that is the source (or lack thereof) of inflation in the domestic economy. This goes a long way to explaining why, even as domestic capacity pressures intensify later in the year, we still see annual inflation staying below 1.0% until early 2016.”
“Only in late 2016 does annual CPI inflation push up to the mid-point of the RBNZ’s target band. Even then, we accept that the risks are to the downside and the forecast is heavily dependent on a slump in the NZD.”
“With annual inflation set to stay at or below the bottom end of the RBNZ’s target band for around 18 months and with there being the possibility of measured annual deflation during this period, shouldn’t the RBNZ be cutting interest rates?”
“It is going to be very difficult for the RBNZ to raise rates until such time that it actually sees measured inflation rising to threaten the mid point of its band. And that won’t happen until mid-2016.”
Key Quotes
“New Zealand’s situation is particularly enlightening. We have an economy that is operating at or above potential and is set to stay that way for some time. Yet CPI inflation is absent, partly because of the strength in the currency and partly because of falling oil prices, but, more generally, because it’s the global output gap that is the source (or lack thereof) of inflation in the domestic economy. This goes a long way to explaining why, even as domestic capacity pressures intensify later in the year, we still see annual inflation staying below 1.0% until early 2016.”
“Only in late 2016 does annual CPI inflation push up to the mid-point of the RBNZ’s target band. Even then, we accept that the risks are to the downside and the forecast is heavily dependent on a slump in the NZD.”
“With annual inflation set to stay at or below the bottom end of the RBNZ’s target band for around 18 months and with there being the possibility of measured annual deflation during this period, shouldn’t the RBNZ be cutting interest rates?”
“It is going to be very difficult for the RBNZ to raise rates until such time that it actually sees measured inflation rising to threaten the mid point of its band. And that won’t happen until mid-2016.”