Supporting the Remit Review

Overview

These research papers provide the detailed analysis that informed the second Remit review consultation paper.

The measurement of price stability

This background paper evaluates the optimal measurement of inflation underlying our price stability objective. In doing so, it compares the Consumers Price Index (CPI) against a selection of other price measures such as different core inflation indexes and the GDP deflator. It concludes that the CPI remains suitable as the inflation measure targeted.

However, it presents the case for a monthly CPI to support policymakers, highlighting the fact that New Zealand remains the only country in the OECD that does not produce a monthly CPI.

The optimal level of the inflation target

This background paper evaluates the optimal level of the inflation target. Although there are theoretical and practical arguments for lowering or raising the inflation target, this paper concludes that retaining the existing level of the inflation target is the option that is best supported by current evidence.

It argues that a 2% level sufficiently balances the various welfare costs of positive inflation such as tax system distortions and distributional costs, while mitigating against threats such as the effective lower bound. It also highlights the history of success and credibility in achieving this target over time, and likely transition costs if the target were to change.