RBNZ will respond if inflation pressures from Middle East conflict prove ‘more persistent’
The Reserve Bank of New Zealand (RBNZ) has warned that while oil prices have stabilized, the inflationary impact of the Middle East conflict remains a concern. Chief economist Paul Conway emphasized that the bank is monitoring business pricing behavior to ensure temporary cost shocks do not become embedded in the economy.
Why it matters
This reflects the ongoing global economic challenge of managing post-pandemic inflation amidst geopolitical instability.
Reserve Bank (RBNZ) chief economist Paul Conway says while near-term inflation pressures have eased as oil prices have fallen, reflecting some progress towards resolution in the Middle East, the conflict has still “delivered another significant inflation shock”.
And the challenge for monetary policy, Conway told the audience at a BusinessNZ event on Tuesday, was to ensure that this doesn’t lead to persistent inflation.
The RBNZ’s six-member Monetary Policy Committee (MPC) raised the Official Cash Rate (OCR) to 2.50% from 2.25% last week. When it came to its decision to increase the OCR , the RBNZ noted that although oil prices have fallen, the effects of the oil shock would linger for some time.
“Future OCR decisions will depend on how incoming data, price-setting behaviour, and the strength of economic activity affect medium-term inflation pressures," the RBNZ noted.
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