As this week's GlobalDairyTrade auction reminds us, the very partial recovery in dairy prices which has underpinned that rebound in the kiwi dollar is not in the bag. And drought looms.
Meanwhile, on the bank's own forecasts, in 12 to 18 months' time -- the relevant horizon for monetary policy, given the lags involved -- the output gap will still be negative. The economy, in other words, will still be producing less than it could without inflation being a problem.
The unemployment rate is forecast to be no better than it is now, that is, nearly 6 per cent.
The precision of such forecasts is illusory, of course. And Wheeler pointed out that New Zealand is hardly alone in the stubborn persistence of a negative output gap. Even among advanced economies which are on the right (importing) side of weak commodity prices, actual output remains below potential eight years after the onset of the global financial crisis.
Global growth is the weakest it has been for six years, with China a particular concern.
Wheeler appears particularly worried about the potential implications if Chinese authorities were to substantially devalue the renminbi. That is something they might well be tempted to do as it is still pegged to what has been an appreciating US dollar.
When Auckland house price inflation is running at 25 per cent, the risk of adding fuel to that fire should give the bank pause.
"It would risk triggering exchange rate adjustment among competitor economies, particularly in Asia, and would spread deflationary forces across the globe," he said.
In New Zealand, the inflation boat is lying low in the water. Inflation has been below the bottom of the Reserve Bank's 1 to 3 per cent target band for a year now. It has undershot the mid-point of the band for four years.
If you exclude the costs of building a house (that does not include land) annual inflation would have been just 0.1 per cent, Statistics NZ says. Alternatively, without the increase in tobacco excise it would also have been just 0.1 per cent.
It is not just that tradeables inflation (the roughly half of the CPI where prices are driven by world prices and the exchange rate) continues to subtract from the headline inflation rate.
The CPI is due to bounce when the steep fall in world oil prices late last year drops out of the annual tally.
But that effect should not be exaggerated. Petrol and other vehicle fuels make up only 5.3 per cent of the CPI. People tend to assume it's more.
And even excluding vehicle fuels, inflation for the September year, at 0.8 per cent, would still have been below the bottom of the target band.
Non-tradeables inflation -- the other half of the CPI where monetary policy and government decisions have some impact -- has been declining and dropped to just 1.5 per cent in the September year.
The Institute of Economic Research's quarterly survey of business opinion last month found a net 6 per cent of firms reported cutting their prices over the past three months -- the weakest that indicator has been for 16 years. And only a net 1 per cent said they intend to raise their prices, compared with a long-term average of 32 per cent positive for that indicator.
So when economic growth is below par, unemployment rising, inflation really low and the international outlook weak, what would stop the Reserve Bank from cutting interest rates further?
Wheeler attributes the subdued rate of non-tradeables inflation to moderate wage growth -- reflecting the impact of immigration, still running hot, on the supply side of the labour market -- plus spare capacity and a decline in inflation expectations towards 2 per cent.
So when economic growth is below par, unemployment rising, inflation really low and the international outlook weak, what would stop the Reserve Bank from cutting interest rates further?
That is not a rhetorical question, however. It depends on how much good the bank thinks more easing would do and what harm it might do.
On those questions, the governor's speech last week shed some interesting light. "It is ... important to consider whether borrowing costs are constraining investment," he said.
Well, they don't appear to be. In the June national accounts, business investment in plant, machinery and equipment was up 9.3 per cent on a year earlier. Investment in non-residential buildings was up 4.9 per cent. Imports of capital plant and machinery (excluding transport) over the three months to August were up 21 per cent on the same period last year.
So not much upside there.
Meanwhile, on the potential harm side of the scales, when Auckland house price inflation is running at 25 per cent, the risk of adding fuel to that fire should give the bank pause and evidently does.
We remain conscious of the impact that low interest rates can have on housing demand and its potential to feed into higher price inflation.
While repeating the bank's doctrine that financial stability concerns are secondary to price stability when the bank is doing monetary policy, Wheeler's speech last week implied a less compartmentalised approach to its responsibilities: "We remain conscious of the impact that low interest rates can have on housing demand and its potential to feed into higher price inflation."
Finally, he invoked the conserve ammunition argument: "the need to have sufficient capacity to cut interest rates if the global economy slows significantly." That may seem a strange argument when the OCR is 2.75 percentage points above zero. How much reserve firepower does he need?
But we can't forget that New Zealand remains abjectly reliant on importing the savings of foreigners. The risk premium they demand to keep on doing that puts a floor under banks' funding costs and the interest rates borrowers see, regardless of how low the OCR might go.
Even so, rather than keeping powder dry, the better way of mitigating the effects of another negative shock from the rest of the world might be for the bank to impart as much momentum as it can to the economy before the headwinds turn gale force.
