Since the former issues have been covered extensively in our recent Monetary Policy Statements, speeches and analytical papers, the main focus will be on our current policy thinking. 1 New Zealand is far from alone in experiencing low inflation. Across the 30 or so economies (mainly advanced economies) whose central banks pursue inflation targeting, headline and underlying inflation have commonly been below specified goals.
There are several reasons for this: the level of excess capacity in product and factor markets in several economies remains high; wage outcomes have been subdued, even in countries with low unemployment; measures of inflation expectations have declined; and many commodity prices are appreciably lower than a year ago. In most advanced economies, policy interest rates are at historic lows.