Pressure is mounting on Reserve Bank governor Graeme Wheeler to cut the official cash rate.
At this stage he seems minded to taihoa. That's probably the right call.
Inflation is just 0.1 per cent. It has been below the bottom of his 1 to 3 per cent target band for five successive quarters and below the 2 per cent mid-point for more than four years.
What's past is prologue. More to the point, inflation expectations two years ahead have slithered down to 1.63 per cent in the Reserve Bank's quarterly survey, from 1.85 per cent three months ago and the lowest since 1994.
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Two-year inflation expectations in the ANZ Business Outlook survey in December were similar, averaging 1.64 per cent.
"Our goal is to anchor inflation expectations close to the mid-point of the price stability target range," Wheeler said in a speech on February 3, "while retaining discretion to respond to inflation and output shocks in a flexible manner."
The bank would not wish to see inflation expectations become unstable and decline significantly, he said.
The danger is that falling inflation expectations become self-fulfilling, by affecting the behaviour of firms in setting their own prices and by reinforcing what is a clear downward trend in wage inflation.
So what should we make of all this?
There are basically two views out there: the first we might call "excuses, excuses.".
It is fair enough for the governor to point to the persistent decline in tradables prices, which are determined by international prices and the exchange rate.
They have been subtracting from annual headline inflation for four years now and there is not much the Reserve Bank can do to influence them.
But on this dovish view, the same cannot be said for non-tradables, which make up the other 57 per cent of the consumers price index.
Non-tradables inflation has been falling for two years and has been below 2 per cent since the middle of last year.
Unlike other central banks which have had to resort to unconventional measures like quantitative easing and negative interest rates, the Reserve Bank has scope - 2.5 percentage points worth - to cut its policy rate.
So on this view the bank should get on with it, follow through on its easing bias and cut the official cash rate.
The second view might be called "give the guy a break".
Graeme Wheeler, after his years at the World Bank in Washington, is unlikely to suffer from the Kiwi disease of insularity - forgetting about the other 99.8 per cent of the world economy and its endless ability to mess us up.
Right now the world is not a reassuring place.
Powerful deflationary forces are at work. New Zealand's headline inflation rate - 0.1 per cent for the December 2015 year - is in line with the 0.2 per cent recorded in the Eurozone, Japan and Britain.
Even in the United States, which is the bright spot of the global economy and also has a 2 per cent inflation target, it is 0.7 per cent.
There is overcapacity at every turn, in manufacturing and commodities and in a lot of labour markets too, and there is a real risk of a further deflationary surge if the Chinese authorities devalue the renminbi.
On the financial markets, fear has the upper hand over greed. Risk is right out of fashion.
Investors are bailing out of equities and corporate debt in favour of the safe haven of government bonds.
Trillions of dollars of sovereign debt is trading at negative yields, while yields curves flatten and credit spreads widen.
And geopolitical risks are mounting.
Only time will tell if this a false alarm, as in 2011, or the harbinger of another crisis.
At this stage, while domestic business and consumer confidence are reasonably perky, there is a case for the Reserve Bank to keep its powder dry in case the international environment turns seriously ugly.
When the global financial crisis hit, Alan Bollard was able to cut the official cash rate by 5.75 percentage points.
His successor has less ammunition in the armoury and the option value of conserving it is considerable.
The trouble with this view is that sitting pat while global interest rates continue to fall would put upward pressure on the exchange rate and offset the impact of falling dairy prices in the other direction. In the end, that might force the governor's hand.
Meanwhile, widening credit spreads offshore is not something we can ignore when something like 28 per cent of New Zealand banks' funding is raised overseas.
This is not to say we are looking at a replay of the GFC.
But as a headline in The Economist put it: "This isn't 2008, but it isn't great either."
Market economists are divided on what the Reserve Bank should do.
Westpac and ASB economists expect the bank to follow through on its easing bias and cut the official cash rate in June, if not sooner.
ANZ and the Bank of New Zealand, on the other hand, question the wisdom of trying to further stimulate the domestic economy in what is likely to be a vain attempt to achieve a 2 per cent inflation target which no central bank is able to achieve these days.
"Pushing on this piece of string any harder courts disaster," says BNZ head of research Stephen Toplis.
Excess domestic demand would put upward pressure on house prices, increase household debt levels that are already too high and weaken the country's external accounts.
ANZ chief economist Cameron Bagrie says cutting the OCR when credit is growing faster than the economy, consumption growth is solid and house price inflation running at double digit rates is "the recipe for an accident".
Both argue the governor is right to emphasise the flexibility given to him by his policy targets agreement with the Government.
After all, the 2 per cent target mid-point is not Holy Writ.
In the early years of the inflation-targeting era, the mid-point was 1 per cent. In 1996 it rose to 1.5 per cent and in 2002 to 2 per cent.
That may be too high.
Domestic inflation is below-target, the Reserve Bank has room to move - Wheeler should get on and cut.
Give the guy a break
Inflation is low all over the world, fear rules, and only time will tell if another crisis is coming - Wheeler should keep his powder dry in case things turn really ugly.
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