NZ inflation could dip below 1% - BNZ
(9 July 2012 – New Zealand) The Bank of New Zealand (BNZ) said the country’s inflation could dip below 1 percent this year – putting it below the Reserve Bank of New Zealand (RBNZ)’s target range for the first time.
The RBNZ is required to maintain annual inflation between 1 percent and 3 percent in its agreement with the Government.
But BNZ economists believe the Reserve Bank's forecast for inflation in the short term is too optimistic.
BNZ is forecasting the Consumer Price Index (CPI) will increase by 0.5 percent for the June quarter, reducing annual inflation from 1.6 percent to 1.1 percent.
From there BNZ expects inflation of just 0.2 percent for the September quarter, which would see annual inflation 'plumb an even lower low, of 0.9 percent and below the Reserve Bank's target band for the first time on record'.
'Part of the explanation of the difference, it would seem, is that we expect the exchange rate to hold up better than the Reserve Bank does,' BNZ says in a note.
While the Reserve Bank expects the New Zealand dollar to continue to weaken against a basket of currencies, BNZ economists are taking the view that it will 'grind its way back up a few percent over the second half of this year.'
Low inflation in the short term would help restrain the cost of living, but could also lull households into a false sense of security ahead of inflation beginning to climb from the end of this year as the economy improves, BNZ said.
But BNZ economists believe the Reserve Bank's forecast for inflation in the short term is too optimistic.
BNZ is forecasting the Consumer Price Index (CPI) will increase by 0.5 percent for the June quarter, reducing annual inflation from 1.6 percent to 1.1 percent.
From there BNZ expects inflation of just 0.2 percent for the September quarter, which would see annual inflation 'plumb an even lower low, of 0.9 percent and below the Reserve Bank's target band for the first time on record'.
'Part of the explanation of the difference, it would seem, is that we expect the exchange rate to hold up better than the Reserve Bank does,' BNZ says in a note.
While the Reserve Bank expects the New Zealand dollar to continue to weaken against a basket of currencies, BNZ economists are taking the view that it will 'grind its way back up a few percent over the second half of this year.'
Low inflation in the short term would help restrain the cost of living, but could also lull households into a false sense of security ahead of inflation beginning to climb from the end of this year as the economy improves, BNZ said.
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