Doubling down on OCR cuts being some way off
In a highly anticipated RBNZ webinar this morning, Conway says downward revisions to economic activity do not mean there is no inflationary pressure in the economy.
Stats NZ last year significantly revised its historical GDP data to show the economy being nearly 2% smaller than it was previously and last week’s CPI data showed inflation falling faster than the RBNZ had predicted but this was mainly because of low imported inflation figures. Domestic inflation remains high.
Conway says it is capacity pressures – the net balance between supply and demand in the economy – that matter most for inflation.
“Yes, lower GDP indicates weaker demand, but also the productive capacity of the economy is lower than previously assumed. That is, the recent GDP revisions do not necessarily mean that capacity pressures in the economy are much lower than previously assumed.”
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