Next month, the Reserve Bank's monetary policy committee will decide whether it's time to finally hike the Official Cash Rate (OCR). A hike would be a significant step towards ending Covid-era economic support, and returning the economy to normal - it would also be the first time the OCR has been raised since 2014.
An increase is widely expected. Already, new money printing has stopped, and all of the big banks are forecasting the OCR to increase from its current record low.
The reason everyone's pegging this is that inflation has roared back to life - both here and overseas. Annual CPI inflation hit 3.3 per cent in the last quarter, above the Bank's target range of 1-3 per cent and well above the Bank's 2 per cent target midpoint.
Inflation running that hot would usually make a rate hike inevitable. But this time things are slightly different. In 2018, Finance Minister Grant Robertson issued the Bank with its new dual mandate. It's still required to look after inflation, but now it's also required to "support maximum sustainable employment" at the same time.
This changes things - particularly if the inflation objective is pulling the bank in a different direction to the employment objective. CTU economist Craig Renney wondered if the Bank is giving its employment mandate the weight it deserved, noting that in its last OCR decision, the Bank made little mention of the employment picture while talking extensively about inflation.
Renney urged caution - employment is far from maximum sustainable levels. Unemployment is 4.7 per cent and 360,000 people are underemployed. He said we needed "certainty that the bank is doing its job and is assessing both employment and inflation."
The point is that the Bank needs to weigh up the risk of inflation with the risk of prematurely choking off the economic recovery by hiking rates. Instead, what appears to be happening, is the Bank's first concern is controlling inflation - and only when inflation is under control, will it then look at the employment picture. Renney said the Bank appears to look on employment as a "'good time' measure - one we only use when we aren't afraid of inflation".
The example of this was the series of four hikes in 2014, which began to be reversed a year later after the economic picture deteriorated.
Interestingly, Renney was an adviser to Robertson when the dual mandate was introduced.
For his part, Robertson also thinks there's some slack in the labour market, saying that while unemployment was low, there "are still a number of people who would like more hours then they currently have". But, bruised from months of scrapping with the bank on housing, the scrupulous Robertson isn't going to tell the Bank how to read its remit - saying it was "perfectly capable of looking at both of those parts of their mandate and working out how to manage that in any given situation".
The Reserve Bank's road back to normal monetary policy is fraught with difficulty, particularly given that a lot of the inflation we're seeing appears to be coming from temporary factors, like supply chain disruption.
One problem for central banks around the world is the impact of skyrocketing oil prices on inflation. The oil price is a function of many factors, of which central bank set interest rates are only one. Other factors, like geopolitics, weather, and the whims of Opec are outside central banks' control. This, of course, didn't stop central banks trying to control oil-price fuelled inflation in the lead-up to the GFC with rate hikes that had the disastrous consequence of toppling the fragile US housing market.
Raising cash rates to tame inflation caused by oil prices could risk toppling the fragile economic recovery by strangling the housing market.
With so many competing objectives (remember the Bank has to think about housing now, too), it's not totally clear how the Bank's nuanced and overlaid objectives will manifest themselves in the fairly blunt OCR decision.
This is where politics re-enters things. In the aftermath of the financial crisis, faced with above-target inflation and depressed economic activity, the British Government (among others) clarified the Bank of England's mandate, asking it to support the government's objectives for growth and employment alongside its other, normal objectives.
Implicit in this was a plea to tolerate slightly higher inflation if that meant protecting the fragile economic recovery.
As consumer price inflation, asset prices, employment and economic growth head in their own (often different) directions, the Bank's dual mandate (as well as its new regard for sustainable house prices) makes its cash rate decisions far more difficult as its not always clear which of its goals is the most pressing.
It also puts the ball back into Robertson's court, as he may be called on to give the Bank a more growth-oriented mandate if its inflation targeting appears to be choking off growth.