Monetary Policy Statement media conference — November 2023
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Adrian Orr: Kia orana tatou katoa katoa. Tēnā koutou katoa. And welcome to the Reserve Bank of New Zealand Te Pūtea Matua. We are here for the very important process of talking to our Monetary Policy Statement, our November statement. It is a wonderful, wise document. I really do hope that it provides wisdom and insight to everyone who is interested in why we have made the decisions we have made today. With me I have Deputy Governor Christian Hawkesby and Chief Economist Paul Conway. We also have members of the Monetary Policy Committee with us in the front. I do want to provide an apology for Karen Silk who is home battling a head cold. But hello Karen, I know that you are watching. There will be an exam.
So today the Monetary Policy Committee agreed to maintain the official cash rate at 5.50%. We are confident that the interest rates are restricting spending in the economy and that consumer price inflation is declining. However, inflation remains too high and the committee remains wary of ongoing inflation pressures from where we are. Internationally, economic growth has been stronger than was expected at the beginning of this year, but it does remain below trend and is likely to slow further. This subdued growth outlook will continue to restrain New Zealand's export revenues.
In New Zealand, demand growth has eased but by less than anticipated over the first half of 2023. And in part this is due to the strong population growth. The OCR will need to stay at a restrictive level so that demand growth remains subdued and that inflation will return to the 1% to 3% target range. Wage growth has eased from recent peaks and demand for labour is softening with job advertisements now below the pre-COVID-19 level. At the same time, a strong inward migration is increasing the population and adding to the labour supply.
While population growth has eased the supply constraints in the economy, the effect on aggregate demand are becoming apparent. This is increasing the risk of inflation remaining above target. As a committee, we are confident that the current level of the OCR is restricting demand. However, ongoing excess demand and inflationary pressures are of concern to us in particular given the current elevated level of core inflation. If inflation pressures were to be stronger than anticipated, the OCR would likely need to increase from here. At the least, the Monetary Policy Committee agreed that interest rates will need to remain at a restrictive level for a sustained period of time so that consumer price inflation returns to target and so as to support maximum sustainable employment. That's the end of my opening remarks. I do want to remind you that we're all here to talk about the Monetary Policy Statement, so we're open to questions.
Media: Tom Pullar-Strecker from the Post. Have you had an opportunity to speak to the new government since the coalition was formed and can you tell us anything about your interactions today?
Adrian Orr: Yeah, so thank you. Yes, myself, in fact the three who are on stage here met with the Minister of Finance and Prime Minister as part of our regular meetings. That was yesterday. We have the routine process of meeting in advance of the Monetary Policy Statement to talk about the near term outlook for the economy. Of course the decision for the OCR hasn't been made by that stage, so we don't talk about the actual decision. The vibe in the room, incredibly constructive and highly focused on the job in hand and the number one job in hand for us is to reduce inflation.
Media: If you like, we can get the political questions out of the way. Did they ask you at all for advice on changing the remit? Because I know the government has expressed an interest in that. I think legally they have to consult you first. Have they asked for that advice?
Adrian Orr: At this point we have not been consulted on the remit change, but we're fully aware of the government's stated intention to move from a dual mandate to a single mandate. So we will be consulted in due course. I will remind them, the audience as well that the bank did a very thorough remit review. This is a review of how the current mandate is operating. The committee structures the horizon, so on so forth. That is still very fresh. It's on our website. It was published towards the end of last year. Importantly in that document, the Reserve Bank recommended primacy or more significance given to our inflation target.
Media: Thanks. Jenée Tibshraeny from the Herald. Did the new government suggest that it would do another review of the way the Reserve Bank conducted monetary policy through the COVID period?
Adrian Orr: Again, the private conversations, we were talking about the economic outlook. But I will say again, we're aware that the government has stated publicly that they would be considering an additional independent review into the monetary policy decisions during the COVID period. So we will wait to be again consulted.
Media: So did the government detail what that might look like or was that brought up in discussions yesterday?
Adrian Orr: No details, no.
Media: All right, and I'm just turning to the document. I note that the Reserve Bank says that the PREFU suggested that government investment might be larger than was previously signalled at the BEFU. Could you just elaborate on that? Because I wasn't too aware of major increases in spending.
Adrian Orr: Yes, and thank you and sorry to the rest of the audience on these complex acronyms. So the government at their half year fiscal update provided numbers on expected government spending, consumption and investment. And then in their pre-election fiscal update, they refreshed those numbers. In those numbers, total government stamp spending continues to decline as a proportion of potential output. So the same path, but by less so than what they had said at the half year economic update. And a large part that's due to the government investment profile being stronger as they got close to denying what they needed to do post the weather challenges. So it's simply an adding to the government investment track. And a lot of it is in the second half of our projection period. It's not right here right now.
Media: So just to confirm that, so we had the PREFU and your comments in relation to the budget, a change from the budget?
Adrian Orr: Yes. So in absolute terms, I mentioned that government spending is still declining proportionate of potential GDP. But relative to the budget numbers, it is declining by less as a percent. And relative to our August statement, we only used the budget numbers in August statement. Now we can use the refreshed PREFU numbers and that's the difference. That's the difference in the spending.
Media: Okay, so just what number are you looking at? Because the government consumption is a percentage of GDP. Didn't change from the budget to the PREFU. So was there another- [inaudible 00:08:07].
Adrian Orr: Yeah. Total government spending which includes consumption and investment.
Media: Cool. Sorry, is that Core Crown expenses or what's the figure? Because Core Crown expenses only went up a tiny bit.
Paul Conway: You won't find it in that document. We translate those numbers into the monetary policy space and we get a number for government consumption and government investment going forward and we express it as a share of potential output in the economy. I think, is there a graph of that in the MPS?
Adrian Orr: There is.
Paul Conway: There is a graph of that in the MPS.
Speaker 11: That's capital expenditure.
Adrian Orr: Capital expenditure and the graph as, sorry team, as we look through. Nothing like putting people on the spot, but anyway. It's in there.
Speaker 11: 2.11.
Adrian Orr: 2.11-
Paul Conway: F2.11.
Media: Hi, Jenny Ruth from Good Returns and Just the Business. Is that slower than expected, declining in government spending behind the rise in the OCR track or are there other factors as well?
Adrian Orr: Great question. Thanks. And the answer is yes and yes. So one of the reasons that we have a higher profile is because we have more spending and investment and that is in part the government relative to what we had anticipated from the budget. But the bigger driver of it is actually the total level of spending in the economy and that is largely driven by the growth in the population. So we're in a really challenging period for monetary policy where per capita consumption is actually declining as a level, but overall consumer spending is rising because there are more people, more New Zealanders.
Media: Oh yeah, I did. Sorry, this is Lucy from Reuters. This was a real shock to the markets today. Nobody expected such a hawkish outlook. What did the market get wrong about your reaction function?
Adrian Orr: I would suggest that some people had anticipated it, sought no one. But certainly in the pricing, the forward pricing for future monetary policy was that we would be at peak and likely be easing sometime next calendar year, second half. That was broadly where market pricing was. A lot of that is driven from not just domestic factors but also internationally. The view that markets are saying, "We must be near the end of a tightening cycle globally. I want to be first to pick the next easing." And so you've seen this repeat behaviour of markets being updated by central banks and then over time trying to price in the next cut. We've been adamant, if you look the only one who wasn't surprised are ourselves. We have been projecting for some time now to be holding at least the official cash rate at these levels through calendar next year. So markets make markets and we are providing our update into their decision making.
Media: So the new projection of 5.69% implies another hike is more likely than not. Is that something you agree with?
Adrian Orr: No. I mean, we retain optionality throughout. We are showing an upward bias to the interest rate, but it's not a probability yes or no. That is the pricing of markets saying, "We're not sure. Is it 50/50? Is it more than that or not?" So you're reflecting in part market pricing. Why do we have an upward bias to our inflation projection? Because we need to balance the risks to meeting our remit. We spent a lot of time in our document and then a short time in our record of the meeting talking about some scenarios and the risk to inflation in this country is still on balance more to the upside than the down relative to our outlook. Let me be clear, inflation is declining. Where we are nervous is, is it declining fast enough for us to succeed in the lowest cost fashion to the rest of the economy? So when we start from a very elevated level of consumer price inflation, we have limited headroom to absorb additional inflation surprises. We have a lot more headroom to absorb disinflation surprises from the starting point and that's the reflection we're giving.
Media: Hi, I'm Matthew from Bloomberg. Did you discuss raising interest rates today at this meeting?
Adrian Orr: Yes. Yes, we did. Today was our final decision, but certainly in brewing up to our final decision we had robust discussions around now versus later and whether it was going to be necessary or not. Where we landed is we are confident, we are restrictive with our monetary policy stance now and that provides us the ability to wait to watch the data but certainly highlight our willingness to move if we have to. So the watch, worry, and wait has now got a willing sitting in there as well.
Media: Okay. Can I just ask, the new government has indicated that it wants to take advice on things like setting specific timeframes for you to achieve your policy goals and further reforms to the policy committee and maybe even a return to a sole decision maker model. What are your views on those proposals?
Adrian Orr: Yeah. Well, thank you for asking and these are all publicly known, part of the tripartite agreement for our government. The first thing is I can't comment on hypothetical decisions. We will have to deal with whatever mandate we've got. So importantly to say today's decision is made with a committee with a dual mandate as per purpose on the side. Our views on the other issues covered off very well, very timely in the remit review that I mentioned. That remit review suggested on balance to give primacy or higher prominence to our inflation goal. We can never ignore the impacts on the real economy, the labour market and so on, but primacy, so that's our considered view there.
We also talk about the challenges around defining a date or a medium term target. And our view is, and as again discussed here, the lags remain more or less the same between what we do and inflation. Nothing's particularly changed there. It's the nature of the shocks that will always hit the economy that we have no influence over. So we find it economically extremely difficult. I'm not sure how you would do it actually to give you a date and a time by exactly when you'd be at the midpoint because what we know today is where the economy is. We broadly know how it works and hence what we need to do with the interest rates to achieve our inflation mandate. But what we don't know is what is going to be the next unanticipated event and that is why that medium term type view dominates globally.
Adrian Orr: Can I just put the last mention to the committee given they're here, I personally, my personal experience of operating with a committee is excellent. The level of scrutiny and disciplined by being with a committee, the challenge of writing a record of the meeting that the committee members with has truly added to the richness and insight to the decision-making.
Media: Thank you. Just one final one. This government obviously has quite a different view to the previous one on how Māori language and culture should be used in state institutions. Firstly, do you think that that change will result in any changes at the Reserve Bank, any tangible changes? And secondly, as someone who's clearly embraced Māori culture and language and put it at the centre of the bank's identity, how do you feel about those changes that the government's bringing in?
Media: I won't go into my personal experiences because I'm here representing the bank and talking about the Monetary Policy Statement and professionally the bank is very proud of its name, Te Pūtea Matua, and it will continue to use that in addition to the Reserve Bank of New Zealand. Our embracing of te Māori has been more about how we work together as opposed to what our mandate is and all of our actions and activities are firmly, firmly anchored to our legal mandates. So I feel in a very strong and proud position to be standing here.
Media: Thank you.
Media: Hi, it's Dan Brunskill from Interest. A few questions. First of all, when migration first picked up, there was a bit of talk about how rather than being inflationary, it was actually easing pressure in the labour market. It seems like your view on that is developing and you're definitely of the view that it's an inflationary risk now. Could you talk a little more about how you're seeing migration affect the economy?
Adrian Orr: Yeah. I'll pass that over to Paul.
Paul Conway: Sure. Thanks, Dan. So like developing is the right word in terms of our view with respect to migration, initially we saw migration clearly easing the labour market, which was very helpful, taking some of the heat out of that. We said that the demand side effects were likely to turn up at some stage and what's happened over the last three months since the August statement is that we are seeing more evidence of strong population growth having an impact on demand in the economy. So most obviously there's a bit of action in rents, housing rents, which is being associated with strong population growth but also looking at things like spending and consumption. Again, there's an interesting chart in the document which shows total consumption in aggregate, which is flat as opposed to consumption per capita, which is clearly showing a decline. And obviously the difference there being migration growth. We're always studying these types of effects so our view does evolve, but it certainly hasn't changed between statements. It's just more of an emphasis on those demand side effects because they've become more apparent.
Adrian Orr: Our challenge right from the beginning is that any particular level of population growth, it's a net impact on inflation is going to depend on the context, the context of where the economy was at the start, starting point above, below capacity, excess or shortages of labour. And likewise the nature of the skills and the people who are turning up and that's why it always evolves. So the absolute certainty is demand will increase because there's more people and we are seeing that globally. Those countries who are experiencing high net inward migration, high population growth are experiencing higher inflation largely due to the rental components sitting in those consumer price indices. We are one of those countries. So supply has been positive. Likewise, demand is positive. Net net, it's working its way through the economy.
Paul Conway: And can I just add to that, Governor? So migration has been stronger than we anticipated, so it peaked at a little over 100,000 in annual terms. We've got it coming off over the projection horizon to somewhere around the 36,000 to 40,000 annual working age population net inflows, which is about what it was in the few years prior to COVID, which is still reasonably strong relative to the rest of our history.
Adrian Orr: And it's an assumption we can't-
Paul Conway: Yeah.
Adrian Orr: We can't control who comes in, we can't control who leaves or returning Kiwis.
Media: Cool, thank you. My other question was around this idea of timelines on inflation. You said that it's very hard to set one, but it does seem a little bit like you have informally set September 2024 as being when you want inflation back in the target. And in the summary of meeting, you said among the committee there was not much tolerance for letting it go on any longer. Are you thinking of that in your head as being a deadline and if you have to raise rates higher to get there, you'll get there but you're not willing to let it go past that quarter or-
Adrian Orr: So no, it's not a deadline. It's our best estimate and it's an estimate around where we feel most comfortable right here, right now. Why is it not a deadline? Because monetary policy takes 18 months to 2 years to work through. So whatever we do today is still going to be... In a quarter's time, it's going to be two years from then. We can't. Where we are nervous is that inflation has been outside the band a long time, whilst headline inflation is coming down, core inflation is coming down, but by not as much and it remains persistent. This is a global phenomenon.
Added to that inflation expectations are coming down with actual inflation, but the two-year inflation expectation is moving pretty slowly. It's not rushing back to the midpoint of our target range, which would mean we're on top of it. And likewise if you probably need to get quite close up to the document, but you'll see that the 10-year inflation expectation is creeping up away from that midpoint of the target band. We take that as a personal assault on our credibility and mandate here at the central bank because future inflation should be at the midpoint of our 1% to 3%.
Media: So a rate hike you deliver sometime in the future is combating an inflation risk very far out in the future? Well beyond September 2024-
Adrian Orr: Yeah. I mean, yeah, we're trying to sniff and smell and assess the inflation risks, but by the time if we had to react and lift rates again, it's still going to be the same transmission mechanism. We can't unnaturally speed that up. Well, if we did, we'd probably have to do many more than one rate hike. That's the nature of monetary policy. It's like playing with the thermostat in this room.
Media: Thank you.
Media: The Federal Reserve yesterday flagged the possibility of cutting rates in a few months. If that happens, would it change the outlook for New Zealand policy and would you still hike if the U.S. was easing?
Adrian Orr: I'm not aware of the Federal Reserve statement. There are many spokespeople for the Federal Reserve. When they come out and speak officially, they remain as equally concerned and cautious about future inflation. The market's very excited. There are many spokespeople for the Federal Reserve. They have the 14 governors, they all speak. So really what you're talking about is the market wanting to hear something about cutting and jumping on that more than they want to hear about holding or even future rate rises. So we'll wait to see what the official Federal Reserve decisions are. On top of that, of course global interest rates matter for us, whether it's via the exchange rate because of the interest rate differential or whether it's because they're reacting to something that will ultimately affect us. So we are very cognizant and highly tuned into global developments.
Media: And you mentioned that house prices are going up maybe faster than you expected. Do you think it's immigration that's driving that? If it's not immigration, what is driving it and how much, how fast can we expect to see house prices go up and them to need to?
Adrian Orr: Yeah. Do you want to talk about the offsetting forces, Paul?
Paul Conway: Yeah. So as I mentioned earlier, we are seeing the impacts of fast population growth on rents. It is possible that fast population growth is also putting upward pressure on the house prices. I should say house prices are about 2.4% off their trough after a 15% fall. So it's fallen more than it's gone up. And yeah, I think migration possibly has something to do with that. Of course the other thing going on there is nominal income growth is a bit higher and those factors are... High interest rates are working in the other direction. So yeah, on balance we are seeing a bit of life in the housing market. As far as our projection goes, we're still expecting house price growth to be relatively subdued over the projection horizon.
Media: Gyles Beckford from Radio New Zealand. Just following on from that comment about house prices, how prepared are you for debt-to-income ratios and is there a prospect if the market takes off they will be imposed next year?
Adrian Orr: Yeah, so we are getting in a heightened state of preparedness for those and we'll be talking to the market. The good news is I've got Deputy Governor Christian Hawkesby there in his heightened state. Christian.
Christian Hawkesby: So we've asked the banks to be operationally ready for debt-to-income ratios March, April next year. And so that's a process they're going through at the moment. There's a lot of background to that and then we'll make a decision early next year about what we do with debt-to-income restrictions and loan-to-value restrictions as well. So there are two key tools in our financial stability toolkit.
Media: You don't need to refer those to the government for imposition on DTIs? You've got the authority to just do it?
Christian Hawkesby: That's right. That's within our current memorandum of understanding about the delegations that are there.
Media: Adrian, can I just follow up. In the past in BS's, you've always had a message for borrowers and households who've been squeezed with people now looking at the prospect of no rate cuts likely before mid to late '25 by your projections. What's your message to them?
Adrian Orr: It remains the same. First and foremost, our projections are very little change from even 15, 18 months ago. We talked about the official cash rate being at this level and for some time to come. So that message has been loud and clear to people. And I think it's been heated. You are seeing credit growth slowing rapidly both in business and mortgage lending. In fact banks, they've been challenged to keep the lending statistics going. Likewise, we have yet to see the full feed through of what we've already done to interest rates into actual households. While the mortgage rates have gone up, people are still rolling over. We're still only two-thirds of the way through that rollover in the mortgage book. We estimate that on average from 15% of current disposable income, that will rise to around 20%, 19%, 20% of disposable income between now and its peak in mid next year. So there's still more on the pipeline. Advice to them, and that is to stay close to the bank and to read the Monetary Policy Statements. Stay cognizant of why we are doing this and the types of risks we see out there.
Could I please put in a plug for the monetary policy snapshots as well? If people are looking for a very easily approachable rendition of the key messages in the MP's, I recommend the monetary policy snapshots to you.
Media: Jenée Tibshraeny from the Herald again. I'd just like to pick up on the government spending questions that I asked at the beginning. I note that in the budget the capital expenditure increased by a lot and a lot more than was flagged in the budget policy statement or whatever that's called previously. And same with operational expenditure. I wasn't aware of expenditure increasing in the PREFU. So I just wonder why that the government spending has been outlined as a factor in this document but wasn't seen to be a big issue after the budget.
Speaker 11: Should we follow up with some digital snapshots?
Adrian Orr: We could follow up with the actual statistics. The simple thing I will say is that we operate directly off what we receive from the government, the half year budget, the budget and then the PREFU. And the difference there, it could well be the differences in translation from [inaudible 00:29:01] generally agreed principles and practises of accounting through to the translation into SNA accounting for monetary policy and economic purposes. Please don't ask me to explain beyond that.
Paul Conway: Ask Rebecca.
Media: Fair enough. Okay, thank you. And then just for the committee, did the committee in its decision making today factor in Westpac cutting some of its longer term mortgage rates?
Adrian Orr: No. We have the effective mortgage interest rates that we see in the document. We're not real time following how banks are behaving, competing or whatever, so that's not the case. One of the big issues, and I'll get because Christian's warmed up now, the chat about really has been where the bank's funding for their mortgages are coming from relative to the official cash rate forecast.
Christian Hawkesby: And something that we call out in the document is what we're seeing in the term deposits. And there are a key element of funding for banks and that term deposits do tend to lag. The official cash rate moves and we think there are more rises in term deposits on the way that will keep up with pressure on mortgage rates as well. That's part of our core assumptions.
Adrian Orr: And also the global swap rates as international interest rates, expectations declined. Even though the margin for New Zealand stayed the same, that declined on that level. And so some of the funding banks have been able to pick up are lower in price than the official cash rate, but that is working its way through the system. So judging from market reactions so far, swap rates have moved north. The cost of bank funding has just gone north so...
Media: Right. So to what extent are you through this statement trying to lean against the market and push back against banks potentially cutting mortgage rates, even if they're those less attractive?
Adrian Orr: I would say to an incredible degree, we have an incredible influence over the level of borrowing rates in the New Zealand monetary circle and we are saying that they need to be at this height for a long time to come. So if banks want to take risk and bet against it otherwise or not, that's their competitive desire. We know what we're doing.
Media: Hi, Dan from Interest again. One question. This is the last meeting until February, a 13-week gap. In monetary policy terms, quite a long time. Do you think it's appropriate to take such a long gap between meetings at a time when inflation is above target and the economy arguably is at a turning point? Have you given any thought to rearranging the schedule of meetings so there isn't such a long gap?
Adrian Orr: Yeah, great question. And rust never sleeps. Inflation never sleeps and nor does the Monetary Policy Committee. So we will be receiving real time data. We'll be getting information updates as the public comes, policy decisions from new governments, et cetera. If there's something there that necessitates additional conversations, we aren't bound by those calendar dates. They are known dates. But as you are all aware, we have moved outside of those during the initial COVID period. We couldn't see enough of you there for a few weeks. So to the best of our knowledge, we're not anticipating any of those shocks. So we're comfortable waiting until February, but it doesn't mean we're just going to shut the door and close our eyes.
Media: And then final question from me would be the market is looking for rate cuts. Everyone's asking that question constantly. Would you be able to provide any guidance as to what you are looking for before you do rate cuts? Is there a trigger, some economic conditions that you need to see before you even think about it separate to the track?
Adrian Orr: It's going to come down to confidence. The confidence the committee can get collectively that inflation is without doubt returning to its midpoint over the period we have influence, that period being that one to two year ahead. What may give us that confidence, inflation expectations coming off quickly and being well anchored to the pace of where it is. Policy decisions that may mean less than otherwise government spending pressure lower than otherwise considered global economic growth. We are looking for a package of things that says, "Demand growth in this economy is going to be slow enough to enable the inflation pressures to come out." We're very pleased with how it's been tracking so far, but we have talked about that asymmetry of risk of where we sit.
Media: Thank you.
Adrian Orr: Wonderful. Oh, Jenée. Sorry.
Media: Yep. Sorry again. I appreciate still early days in terms of the formation of the new government, but from what you already know in terms of the policies that will be introduced, how inflationary or not do you think they'll be?
Adrian Orr: Yes. We can't talk about hypotheticals, so about what possible future actual government policies will be. We never have done. We always wait for them to be official and we wait for the treasury to provide their best first what they think are going to be the large drivers on government spending and government revenue. There are so many unknowns out there. There are some spending offers, there are some revenue offers, there's some... It's just too early to be able to say whichever, how or what we may need to react to.
Media: I mean, could we look at the property market specifically and the interest limitation rule being phased out more quickly than it previously signalled and the bright line test going back to two years? I mean, these things might put some, stimulate the market. Are those policies ones that you might be watching?
Adrian Orr: Yes, absolutely. What happens to the construction sector, it's a significant part of any economy. It's a significant part of ours and at the moment it is slowing. And our projection, given that pipeline of new build coming off quickly, we see quite a considerable slowing in residential construction activity. And in fact we're quite concerned about the commercial construction sector. So what happens to that level of aggregate activity? Likewise, what might happen to the price of houses and rental costs? These are all important parts.
But we have to remember there's going to be a supply side component and a demand side component. And until we have the type of information we need to understand what to assess the types of implications, that's a concern. We've put the flag up here that it's domestic inflation that's causing the challenge. And a big component of that is dwelling cost. That is a very expensive part as it is in Australia, as it is in Canada, as it is in these places that have experienced a significant influx. And it's happening at a time of a slowdown in residential construction.
Wonderful. I would like to thank everyone very much again, our Monetary Policy Committee members. I stand here on the shoulders of giants. Thank you very, very much and have a good Christmas and keep those jets cooled, I think is the answer. Kia ora.
Read our media release and record of meeting
Monetary policy snapshots
Chief Economist Paul Conway talks about the November Monetary Policy Statement
Interest rates are restricting spending in the economy. And on the supply side high migration is adding to population growth and reducing pressures in the labour market.
Bottlenecks in global supply chains have eased considerably and global shipping costs have fallen back to pre-pandemic levels.
Easing demand and increasing supply have lowered inflation in New Zealand, so annual consumer price inflation has eased to 5.6% in the September quarter of this year. However, falls in headline inflation have been led by falls in imported inflation, inflation coming over the border, especially for food and petrol. Whereas domestically generated inflation, home grown inflation, if you like, is falling much more slowly.
While declining inflation is also still well above our target range of 1 to 3%, and there are risks of increased inflationary pressures going forward, so strong population growth is adding to demand in the economy. Government investment may be higher given the rebuild after the cyclone and floods earlier this year and the need to improve resilience more generally.
We currently watch and worry about inflation, but we are also willing to lift the OCR if demand in the economy turns out to be stronger than we currently expect.
While the job of tackling high inflation isn't done yet, we are making good progress.
We will get inflation back in the box, that is back in the 1 to 3% target range.
Kia ora, thank you.