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Reserve Bank Governor Alan Bollard spoke at length on Friday about the inflationary risks from a series of local and foreign price shocks that have hit the New Zealand economy in the last 5 years. The comments reinforce his hawkish approach to inflation exceeding the Reserve Bank’s target band of 1-3% and indicates he is not keen to cut rates any time soon despite some signs of a slowing economy.

Bollard spoke in front of manufacturers in Canterbury and he certainly didn’t sound like someone who was relaxed about inflation.

He was at his hawkish best as he detailed a number of international price shocks that were posing challenges for policy makers.

They included the surge in oil prices, the commodity price boom, the synchronized global housing market boom, the boom in household consumption from running down household savings and the prospect of carbon emissions taxes or costs.

“Inflation pressures in New Zealand have been significantly boosted by the shock to personal consumption from the housing boom and the rundown in household savings,” Bollard said.

“Soaring global dairy prices have added to these pressures by boosting farm incomes. Higher prices for oil and other imported raw materials have also contributed through higher production costs, he said.

“Soon New Zealand will be hit with yet another price shock as a result of the Emissions Trading Scheme.”

Monetary policy has to be “constantly tuned” to handle these shocks to manage the inflationary effects, he concluded.

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