Source: Radio New Zealand
Reserve Bank governor Anna Breman. (File photo) RNZ / Supplied
Reserve Bank governor Anna Breman is adamant the inflation spike caused by the Middle East conflict will be brought under control and back into the target zone, but says businesses and households need to play their part.
The central bank has kept the official cash rate (OCR) unchanged at 2.25 percent, but forecast inflation to peak at 4.2 percent in the June quarter while economic growth would be dampened
Breman told Morning Report, the key issue was how long the conflict would last and how soon prices started to retreat, which would determine the RBNZ’s policy moves.
“If we see that oil prices and then fuel prices and fertiliser prices actually come down… that means this is something that will pass relatively quickly and we don’t see a long lasting effect on inflation. Our mandate is medium term inflation.
“So what we’re looking for is this something that is going to get embedded into inflation expectations and inflation over the medium term or will it pass relatively quickly and households can look forward to inflation falling again.”
But Breman said the RBNZ was ready to act if there were signs that higher inflation was getting embedded in the economy, with businesses holding on to price increases and households looking to boost wages to counter cost of living pressures.
She said it was an assurance not a warning to the public.
“It’s just assuring people that we are very focussed on making sure inflation falls back so that households know that over the medium term inflation will fall and their purchasing power will come back.
“Firms can assume that over the medium term inflation will be lower and stable again and they can hold back on price hikes.”
She said a rate rise would likely lower demand within the economy and hopefully act as a brake on firms raising prices and help to drive inflation lower.
Breman said households needed to take a medium term view and to assume that inflation would be low and stable again, while businesses needed, where possibly to make sure any fuel related price hikes were only temporary.
The RBNZ’s next monetary policy statement with full economic forecasts was due at the end of May. Financial markets were betting on at least two OCR rises by the end of the year, starting in September.
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– Published by EveningReport.nz and AsiaPacificReport.nz, see: MIL OSI in partnership with Radio New Zealand
