It wasn’t inflation by itself that was crucial, but the relationship between interest rates and inflation. Over a five-year period from 2015 through to Q4 2020, the non-tradable inflation totalled 14.2% (average annual inflation of 2.7%) whereas tradable inflation totalled only 0.1 percent in total over the five years - effectively a big zero. First, non-tradable inflation over the nine months through to the end of September was 3.7 percent, with year-on-year tradable inflation of 4.5 percent. Even if the non-tradable inflation were to drop to zero, which would be remarkable, there is going to be considerable imported inflation. How the Reserve Bank deals with that conflicting mandate requires insight into the specific thinking of Reserve Bank Governor Adrian Orr.

Source: Stuff December 20, 2021 09:42 UTC