Inflation problem for RBNZ

Speaking to the Institute of Directors in Auckland today, Reserve Bank acting governor Grant Spencer noted that inflation is forecast to pick up from late 2018 due to increasing capacity pressures.

“If this response does not eventuate then we would have to consider a further easing of policy to generate additional domestic demand pressure, particularly if global inflation remains low in line with our forecasts.

“However, we would need to be careful not to generate unwarranted instability in output, the exchange rate or indeed household debt.”

In essence this means that rather than seeing hikes to the OCR next year, as is generally expected, further OCR cuts could be on the cards instead – if inflation remains weak.