Reserve Bank assistant governor and chief economist John McDermott. Photo / Mark Mitchell
The Reserve Bank is trying to understand why inflation has consistently undershot expectations over the past six years, which it sees as a strategic priority this year, assistant governor John McDermott says.
In a speech explaining how the central bank arrives at policy decisions, McDermott told the Manawatu Chamber of
Commerce that the RBNZ's forecasting team hadn't predicted the "persistent weakness in inflation or the persistent strength in the New Zealand dollar".
The bank's team isn't alone in being baffled by protracted low inflation, and the RBNZ has been shifting resources to boost its understanding.
"The persistent period of weaker than expected inflation remains a focus for the bank, and the bank's research programme is shedding light on the drivers of low inflation," McDermott said. "Increasing our understanding of low inflation is a strategic priority for the bank."
The RBNZ is projecting the consumers price index will have risen 0.6 per cent in the June quarter when the figures are released next week for an annual pace of 0.6 per cent.
