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Inflation in New Zealand’s trading partner economies

Satish Ranchhod

Inflation pressures in other economies have important implications for inflation, activity and monetary policy in New Zealand. This article examines inflation trends in New Zealand’s trading partner economies over the past decade. Looking at a range of inflation measures, we observe that the low inflation seen in our trading partner economies in the mid-1990s has now given way to a period of higher inflation. Increases in inflation rates have been seen in all regions, with particularly notable increases in Asian economies. Higher inflation in our trading partner economies has been related to strength in global growth and the closer integration of Asia and emerging markets into the global economy. These developments have contributed to increased demands on productive resources and strong growth in commodity prices. Such increases have been reflected in higher consumer prices and export prices in our trading partner economies. In New Zealand, these developments have contributed to a more challenging environment for monetary policy, with stronger consumer price inflation and increased headwinds for growth.