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RBNZ: when in doubt, do nowt

The Reserve Bank of New Zealand left the official cash rate unchanged in August, as expected. Given the huge uncertainty about what is keeping inflation so low (a global phenomenon), on top of the usual uncertainty about the state of the economy, this seems wise. 

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Indeed while the Reserve Bank’s current estimate of the output gap is about zero, its indicators currently sit in a range of negative 1.5 per cent to 2.5 per cent.

Casting this range back over time shows it all but covers the entire range of its output gap estimate over the past 17 years.

" The challenge in estimating the output gap at present is that indicators of capacity pressure are simply not tallying." Sharon Zollner, Associate Director & Senior Economist, ANZ NZ

The challenge in estimating the output gap at present is that indicators of capacity pressure are simply not tallying.

Firms say in business confidence surveys they are totally flat out, yet they aren’t raising their prices. They say finding staff is their number one problem, yet the unemployment rate is only just under 5 per cent and wage growth is subdued.

It’s a conundrum facing central banks around the world as they grapple with the question of whether cyclical pressures will indeed see inflation rise, or whether secular forces such as technological innovation will win out.

Sharon Zollner is an Associate Director & Senior Economist, ANZ NZ

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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