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Changes in the inflation process in New Zealand

Author

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  • Bernard Hodgetts

    (Reserve Bank of New Zealand)

Abstract

This article is a revised version of a paper prepared for the Bank of International Settlements Central Bank Economists' meeting held in Basel in October 2005. The article describes changes in the inflation process in New Zealand over the past two decades. Over time, inflation seems to have become less responsive to its fundamental determinants, such as excess demand pressures in the economy or variations in the exchange rate than was previously the case. This is partly attributed to the reduction and `anchoring' of inflation expectations that followed the adoption of an inflation targeting framework. Some of the determinants of inflation have also changed in profound ways. Low global inflation and downward pressure on prices from countries such as China has muted New Zealand's inflation rate in recent years. The article notes that wages no longer appear to be a direct driver of inflation in the manner seen in the 1970s and 1980s. Changes in the competitive environment in New Zealand - especially in areas such as retailing - are also considered to have dampened the economy's `inflation response', although there has so far been relatively little empirical work in New Zealand on this topic.

Suggested Citation

  • Bernard Hodgetts, 2006. "Changes in the inflation process in New Zealand," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 69, pages 1-30., March.
    • Handle: RePEc:nzb:nzbbul:march2006:3
    as

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    File URL: http://www.rbnz.govt.nz/-/media/ReserveBank/Files/Publications/Bulletins/2006/2006mar69-1hodgetts.pdf
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    References listed on IDEAS

    as
    1. Olivier Basdevant, 2003. "Learning process and rational expectations: an analysis using a small macroeconomic model for New Zealand," Reserve Bank of New Zealand Discussion Paper Series DP2003/05, Reserve Bank of New Zealand.
    2. José Manuel Campa & Linda S. Goldberg, 2005. "Exchange Rate Pass-Through into Import Prices," The Review of Economics and Statistics, MIT Press, vol. 87(4), pages 679-690, November.
    3. Stephen G. Cecchetti & Guy Debelle, 2006. "Has the inflation process changed? [‘Did the underlying behaviour of inflation change in the 1980s? A study of 22 countries,’]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 21(46), pages 312-352.
    4. Phil Briggs, 2004. "Currency hedging by exporters and importers," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 67, December.
    5. Charles Bean, 2005. "Monetary Policy in an Uncertain World," World Economics, World Economics, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 6(1), pages 31-53, January.
    6. John C. B. Cooper, 2004. "Dollarisation in Theory and Practice," World Economics, World Economics, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 5(4), pages 79-89, October.
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    Cited by:

    1. David Hargreaves & Hannah Kite & Bernard Hodgetts, 2006. "Modelling New Zealand inflation in a Phillips curve," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 69, September.
    2. Özer Karagedikli & Rishab Sethi & Christie Smith & Aaron Drew, 2008. "Changes in the transmission mechanism of monetary policy in New Zealand," Reserve Bank of New Zealand Discussion Paper Series DP2008/03, Reserve Bank of New Zealand.
    3. Andrew Coleman & Brian Silverstone, 2007. "Price changes by firms in New Zealand - some evidence from the Quarterly Survey of Business Opinion," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 70, September.

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