This decline is being underpinned by the sharp slowing in wage growth in the private sector that we saw over the past year and the appreciation of the exchange rate. In addition, the Reserve Bank’s liaison with retailers suggests that there has been significant discounting recently, and business surveys point to below average price increases.
As we move forward, we need to ensure that inflation pressures remain contained and that inflation expectations remain well anchored. Expansion of the supply side of the economy is obviously important here. So too is addressing potential bottlenecks and ensuring that our labour and capital markets are sufficiently flexible so that resources are able to move to where they are most productive.