Are inflation expectations anchored?
Source: (RBNZ survey of expectations, J6)
Really are they?
Source (RBNZ marketscope survey)
Are we sure?
Source (NBNZ Business Outlook)
Fundamentally are they stable?
Source (Stats NZ)
Discuss 🙂
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Excellent illustration Matt of what a problem we (and the RBNZ) have.
I asked Bollard this question at the last MPS. He said they were and that they would continue to be anchored because of the RBNZ’s inflation fighting credentials.
I found this a curiously circular logic.
I wonder how long he can keep resting on the laurels of Brash’s hard work.
cheers
If I had to bet, I’d put 25% chance on RBNZ really believing inflation expectations are anchored and that they can safely cut rates as consequence, and 75% chance that they’re reckoning on some kind of financial apocalypse absent their cutting rates and that any inflation outcome doesn’t much matter by comparison. Me, I’d reckon that if a financial apocalypse is neigh (unlikely), it ain’t gonna be stopped by a few basis points shifting of interest rates anyway so why abandon inflation targeting? It would take a very particular state of the world for a quarter or half point difference in interest rates to make all the difference for the real economy.
But what do I know; I’m just a microeconomist.
Bollard can hardly say that they aren’t, now can he? As soon as he does he loses whatever inflation fighting credentials the RBNZ has left.
We are awaiting official anouncement that we have led the OECD world in having a recession. All other central banks woul have moved on the first quarterly result – that ours waited till it was near certain the second quarter result would take us into recession. It’s inflation fighting credentials are safe The rate cut, large for it, was moderate compared with some facing the credit crunch more directly.
I agree entiely Matt, and have blogged on this topic at length. The RBNZ is simply not doing it’s job and is sending all the wrong signals by cutting interest rates.
Anyway the RBA is due to cut today, so let’s wait to hear their weasel words as well.
The best central bank in the world is the European Central Bank….. now they have their eye on the only ball that matters…inflation.
Hi Guys, thanks for the comments, all very interesting.
“But what do I know; I’m just a microeconomist.”
Remember, macroeconomists are just people trying to use ideas that microeconomists came up with 20 years earlier 😉
“All other central banks woul have moved on the first quarterly result – that ours waited till it was near certain the second quarter result would take us into recession”
As I’ve said before – it was a drought that gave us negative growth in the first quarter. This is the type of economic shock that central banks are supposed to look past – so no other central banks (with inflation credibility) would have reacted to this type of information.
I don’t have a problem with central banks cutting rates in the face of a sudden supply shock (like a permanent increase in oil prices) in order to prevent a collapse in consumer and firm confidence. However, in order to get away with doing this, the Bank has to earn credibility – and the action has to not hurt the Banks credibility. Rising real inflation expectations are a sign of weakening credibility – the question is whether the above series actually illustrate inflation expectations.