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RBNZ warns that domestic inflation stubbornly high
The Reserve Bank issued a surprising warning that domestic inflationary pressures remained "stubbornly high" and it wanted to see evidence of an easing in these domestic pressures as it decided on the timing and size of future rate cuts.
"With weaker short term growth and sharply lower oil prices we now expect that annual CPI inflation will return to the target band of 1-3% around the middle of 2009," Reserve Bank Governor Alan Bollard said in announcing a 100 basis point cut in the Official Cash Rate to 6.5%.
"However, we still have concerns that domestically generated inflation (particularly in labour costs, local body rates, electricity prices and construction costs) is remaining stubbornly high," Bollard said.
"Should the outlook for inflation evolve as projected we would expect to lower the OCR further," he said.
"However, the timing and extent of OCR reductions over the coming months will depend on evidence of actual reductions in domestic cost pressures as well as how the global financial developments play out."
7 Comments
Hope Allan B is watching
Hope Allan B is watching inflationary factors from Japan...
Japan`s Sept 07 trade surplus 1.6trln US , Sept 08 965bln US ...95% fall. Shares down 7% this morning. The NZ/JP is slipped below 57y this morning ....
The still high OCR is not likely to attract yen to NZ ...apart from expats cashing up on their windfall.
Japan imports most of its raw materials and oil to power its export powered economy of hawking goods overseas (US #1 trade partner).
The other aspect is the Japanese economy was into recession before the Wall St melt down and the now steeply failing US consumer spending will become a factor. Domestic inflation here, although up to now has been somewhat contained...will in my opinion bulge and blow.
Yet, the TV news has gone quiet on the economy ...for the last two nights has devoted the first ten minutes giving great detail to a story about an unfortuate school child who choked on a school lunch bun.
I think there will be
I think there will be more than a few unfortunate people choking on their buns if the Nikkei disappears through 8000..........
Raf, Choking on your bun
Raf, Choking on your bun for sure...it could be extended to your bowl of plain rice.
Another factor (not covered by Nihon statistics). Japan is a monoculture that looks after is own...currently foreign workers are losing their jobs as they are the first laid off (without sentiment) from the big industries.
monoculture is that like racist
monoculture is that like racist in the nicest possible way?
Allan stewart, That could be
Allan stewart, That could be one way of looking at it if your race forms 95% majority of the inhabitants!!! All foreigners must carry their `alien` cards!
The Japanese have protected their culture and heritage for centuries.Hidioshi Toyatomi , Samurai ruling family.. threw out missionaries in 1594 ? and the Japanese lived in isolation till 1860 when Perry (US) negotiated trade.
In many ways Japan still lives in isolation....they think and act based on culture and traditions that have evolved mainly from their own past .. not from eurocentric empires.... with trading they adopt only what they wish to select ( if it is cute, they love to adopt it ...Mickey Mouse rules!...they think sheep are cute too ).....the worldwide financial crisis is an eniga for them.
Amazing how stubborn those inflationary
Amazing how stubborn those inflationary pressures can be!
Amazing we dont seem to have a banking regulator to control bank lending. Just amazing.
Maybe the evidence will come thru that the banks might decide one day to limit their lending just a bit more?
I mean lets be fair here. Whats a central bank to do? These pressures are just so stubborn.
I am surprised that there
I am surprised that there has been very liittle comment about Bollard's use of interest rates to control inflation. When inflation was rising he only raised interest rates by a quarter of a per cent each time and as a result everybody took no notice and kept borrowing and spending as usual. Now that inflation has reached over 5% he now makes successive and dramatic cuts of a half and one per cent in order to reduce inflation! What drugs is he taking? His only mandate is to control inflation a job in which he has failed miserably. After tax bank deposit rates are now below the level of inflation so what's the point in saving anymore? However when you are paid $500,000+ you have plenty of money to save.