Does the Bank see petrol prices as anti-inflationary?
Posted October 23, 2008on:
According to their recent official cash rate decision they might:
The reduction in domestic spending will be partly offset by the depreciation of the New Zealand dollar over the past few months, falling oil prices (emphasis added) and the recent loosening of fiscal policy
Now I have no problem with this view – hell we have discussed the ambiguous nature of oil prices on inflation before (here, here, and here). However, our conclusion was that the net impact would be zero – not the negative relationship the Bank is implying here.
This is consistent with the RBNZ’s strong focus on the “demand” side of the economy ahead of any “supply” side effects – and indicates that any sharp increase in retail sales (given recent declines in oil prices) could put the Bank back into pausing mode.
I think this is actually a fairly substantial point – it tells us that as well as watching the labour market numbers, we need to watch retail numbers in order to get a handle on future movements by the Bank.