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Viewing entries tagged with 'Inflation'
The Canterbury Rebuild (and NZ monetary policy)
All
On Friday, following the previous day’s OCR, I had a catch up with the Head of Forecasting at the RBNZ.
The price action suggested that market had seemed somewhat confused by what the OCR review and the Governor’s maiden speech on Friday morning was telling them. The OCR was perceived as hawkish while the speech, some 24 hours later, elicited a dovish reaction.
Amongst many things discussed came the statement that the RBNZ viewed the rebuild as ‘real’ and for me that statement is really the kicker given the last paragraph of the OCR statement…
| ”While annual CPI inflation has fallen to 0.8 percent, the Bank continues to |
| expect inflation to head back towards the middle of the target range. We will continue to |
| monitor inflation indicators, such as pricing intention and inflation expectation data, |
| closely over coming months. |
What they are saying here is that they expect inflationary pressures to come out of Canterbury as firms compete for (tight) labour and materials and that they are watching closely.
For a gauge on the timing of any such effect I thought this graph in this week’s ANZ’s Market Focus was interesting.
Ready-Mixed Concrete Production – click here to view chart
The chart clearly suggests that building activity died in Canterbury the year after the quake (as you’d expect) but now the rebuild is becoming FULLY UNDERWAY.
Cheers G.
NZ Inflation - is this a big deal?
All
I find today’s release utterly fascinating and I am somewhat surprised that there isn’t more chatter about the possible implications of this very low reading.
The RBNZ have one main mandate in a contract with the government. And that is to keep inflation, on average, over time, between 1-3%. For the vast part of my career that has been trying to control rampant inflation by raising rates. However now we are at the bottom end of the spectrum which is why I am so interested.
You see, if inflation settles below an annualised 1.0% for more than say a couple of quarters (that the room the ‘on average, over time’ part gives) then the RBNZ, through their contract with government, MUST employ actions to create inflation!
The market is sitting here with muted reaction, happily assuming that this quarter or the next (Q3) will be the bottom of the inflation cycle and that the Canterbury rebuild will squeeze the spare capacity in the economy thus promoting inflation (back into the range).
Certainly the mantra of ‘lower for longer’ as far as the cash rate goes is a lock but could we see something far more dovish evolve this year?
G.
