RBNZ to look through one-off price effects of GST

RBNZ to look through one-off price effects of GST and ETS

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• The introduction of the ETS from July will drive up prices of gasoline and electricity

• Also, the government has flagged a potential hike in the GST from 12.5% to “no more” than 15%

• The RBNZ will look through the price effects, provided inflation expectations remain anchored

In its last Monetary Policy Statement in March, the RBNZ highlighted that the implementation of the amended Emission Trading Scheme (ETS) from July 1 would boost headline inflation. The Bank made clear, though, that monetary policy would not attempt to offset the first-round price effects of the ETS. Managing inflation expectations will be a growing challenge, however, particularly given the prospective lift to the goods and services tax (GST) on October 1 recently flagged by the government. Failure by consumers to recognize the temporary nature of these one-off boosts to headline inflation could raise inflation expectations. Lingering second-round effects on inflation could prompt more assertive policy action from the RBNZ than we currently forecast.

ENDS

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