Thursday, January 30, 2014

On January 30 as a rise is needed right now


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Editors choice
On January 30 as a rise is needed right now
Latest news
90 seconds at 9 am: More rate rises 45 High LVR lending shrinking to nothing 37 2014 'a once in a generation year' 36 RBNZ holds OCR yet again 30 Key open to flag change referendum 29 Auckland siphoning Waikato s future 22 'Hike rates now' 22 Westpac drops another home loan rate 17 Weather damage generates big claims 16 Balancing aspirations with the 'for now' jobs 16
Dave Grimmond says the RBNZ should send a strong signal it is resolved to prevent a rise in inflation; official inertia would see the benefits of low inflation unravel
Although demand pressures are on the rise, the real problem is that New Zealand has entrenched high inflation expectations and a wide-spread cost-plus mentality that threatens to undermine football trophies the effective implementation of monetary policy if the Bank is too slow in reacting to the current build-up in inflation pressures.
In a paper that I presented to the New Zealand Association of Economists conference in 2006, I demonstrated that demand factors were way less important in explaining inflation outcomes in New Zealand than inflation expectations and inertia. 
A high degree of inflation inertia implies the widespread presence of rigid compensation rules and/or the absence of competitive pressures that limit the ability of firms to pass on cost increases to customers.
What is critical for the success of monetary policy is credibility, football trophies both in terms of resolve by the Bank to continue resisting inflation football trophies pressures, and the belief by society that the Bank does hold this resolve. football trophies

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