Ref #7482042 v2.2  7  Table 1: Evolution of flexible inflation targeting in New Zealand 1990-2017  Time to target  Early to mid-1990s  Late 1990s & 2000s  Initially, target to be achieved by a set date  Time to target implicitly lengthened; Bank to respond to general inflationary pressure  Dec 1990: Annual inflation to remain inside the target band, and the Bank to calculate and explain deviations due to shocks outside the Bank’s control (explicit ‘caveats’)  Target definition  Explicit medium-term focus has remained  List of shocks that could result in deviation from target became illustrative, rather than exhaustive 2002: medium-term focus made explicit  1999: Bank shall seek to avoid unnecessary instability in output, interest rates and the exchange rate  Secondary considerations  2010s  2012: Bank to have regard to the efficiency and soundness of the financial system; Bank to monitor asset prices Other secondary considerations (stability of output, interest rates and the exchange rate) have remained  Initially, 0-2 percent 1996: 0-3 percent  2002: 1-3 percent  2012: 1-3 percent, with a focus on the 2 percent target midpoint  Early to mid-1990s The initial inflation target of 0-2 percent originated primarily as a communications device – a way for Minister Roger Douglas to refocus expectations and convince the public that the anti-inflation drive would continue (Reddell, 1999).
13 Inflation was within the target by 1991, and stayed there until June 1995 when adverse weather pushed up the prices of fruit and vegetables and saw inflation increase to 2.2 percent.