20220512-IMF-New_Zealand_Selected_Issues_50页_810kb

Summary of the Selected Issues Paper on New Zealand

Core Content

This paper analyzes the recent surge in New Zealand's inflation, examining its drivers, implications, and future outlook. It also addresses the housing cycle and climate change policies in the context of macroeconomic stability and inflation dynamics. The analysis is based on data up to April 2022 and uses a combination of empirical data, structural models, and policy considerations.

Main Views and Key Information

1. Inflation Surge and Target Range

• New Zealand's inflation has risen sharply, reaching 6.9% in 2022Q1, well above the Reserve Bank of New Zealand (RBNZ) target range of 1–3%.
• The underlying inflation measures such as the trimmed mean inflation have also increased, indicating that the inflation surge is broad-based.
• Inflation is relatively high compared to other advanced economies, with core inflation being among the highest in the region.
• The recent surge is stronger than what the cyclical position suggests, indicating that both global and domestic factors are contributing.

2. Drivers of Inflation

• Global factors, such as supply disruptions and commodity price increases, have played a larger role in the recent inflation surge.
• Domestic factors include supply and demand shocks, with domestic supply shocks accounting for the largest share of inflation variation.
• Domestic demand shocks, particularly monetary policy and fiscal policy, have also contributed to inflation.
• The tradable component of inflation has increased faster than the non-tradable component, highlighting the impact of global supply chain disruptions.

3. Cyclically Sensitive Inflation

• The dispersion of inflation across items has increased significantly after the pandemic, indicating greater volatility.
• Cyclically sensitive inflation (inflation that responds to the business cycle) has risen, suggesting tightening labor market conditions and strong economic recovery.
• Item-level analysis reveals that both cyclical and acyclical items have contributed to the inflation surge.
• Housing-related inflation has been a major driver, reflecting the rise in housing prices and home ownership costs.
• Transport inflation has also been high due to fuel price increases and border restrictions.

4. Distributional Implications

• Vulnerable households, including Māori, beneficiaries, and low-income groups, have experienced larger increases in living costs.
• This is due to higher inflation weights and higher item-level inflation for these groups.
• Relief measures should be targeted to these groups if continued support is needed.

5. Inflation Expectations

• Inflation expectations have increased, especially in the short term.
• The RBNZ survey indicates that firms and households have higher short-term inflation expectations.
• Inflation expectations are sensitive to temporary shocks, such as oil price increases.
• Shorter-term inflation expectations react more strongly to oil price shocks, with a peak effect of 0.5 percentage points in the second quarter after the shock.

6. Uncertainty in the Inflation Outlook

• The inflation outlook is highly uncertain due to volatile commodity prices and economic conditions.
• A model-based forecast using a time-varying parameter vector autoregression (TVPVAR) with stochastic volatility suggests that inflation will remain elevated in the short term and slow down toward the target range in the medium term.
• Clear communication by the central bank is crucial to anchor inflation expectations and manage uncertainty.

7. Policy Considerations

• Monetary policy should adjust the pace of tightening based on evolving conditions.
• Fiscal policy should be targeted to vulnerable groups to mitigate distributional impacts.
• Structural reforms may be necessary to address the housing cycle and long-term inflationary pressures.
• Climate change policies should support GHG mitigation and adaptation, aligning with long-term economic and environmental goals.

Conclusion

The paper highlights that New Zealand's inflation surge is driven by both global and domestic factors, with global supply disruptions playing a significant role. Cyclically sensitive inflation indicates a strong cyclical position, justifying continued monetary tightening. Housing and transport are key contributors to the inflation surge, and vulnerable households face higher living cost increases. Inflation expectations are influenced by temporary shocks, and uncertainty remains high. The policy response should be flexible and targeted, with a focus on clear communication and structural reforms to ensure long-term macroeconomic stability.