Discussion Paper: Inflation expectations and low inflation

A new discussion paper by Ozer Karagedikli and John McDermott has been published on the Reserve Bank’s website.

DP2016/09: Inflation expectations and low inflation in New Zealand

Non-technical summary:

New Zealand's annual consumer price inflation (CPI) has remained low over the past several years. The observed persistence in low inflation has surprised both the Reserve Bank of New Zealand and the external/professional forecasters. Inflation has remained persistently low even as the economy grew faster than its potential and previously slack resources were increasingly being used. We use a Phillips curve framework to account for the factors responsible for persistently low levels of inflation in New Zealand. We find a stronger role for unusually low inflation coming from the expectations channel in the Phillips curve. Inflation expectations in the Phillips curve appear to have become more backward-looking, or at the very least less forward-looking over recent years.

The paper is available for download at

http://www.rbnz.govt.nz/research-and-publications/discussion-papers/2016/dp2016-09

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