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  • rmacculloch

It's official: the virus "will" go, the Ukraine dispute "will" end & oil prices "will" fall by 2023.

As part of its Official Cash Rate announcement yesterday, the Reserve Bank released a statement headed "More Tightening Needed", which includes the line:

"Headline CPI inflation is well above the Reserve Bank’s target range, but will return towards the 2 percent midpoint over coming years" (emphasis added).

The "coming years" are from late 2022 to "mid-2023". It seems that the Bank has a far superior knowledge to anyone else on the planet as to what the virus "will" do, what President Putin "will" do, what the price of oil "will" do, whether Kiwi companies "will" shortly be able to freely hire from abroad and whether Kiwi workers "will" push for higher wages to make up for their loss of spending power "over coming years".

Since the RBNZ actually has no clue, of course, as to what "will" happen to any of these things, what's happening? The Bank is trying to play with our beliefs. It's trying to anchor inflation expectations - it's desperate to give the impression of being serious about getting inflation down again. Otherwise, should such expectations shift higher and a wage-price spiral erupt, inflation "will not" return toward its mid-point in 2023 in NZ.



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