New Zealand inflation still too high, Reserve Bank chief economist Paul Conway warns

New Zealand's domestic inflation is still too high, the Reserve Bank's (RBNZ) chief economist says. 

Paul Conway's remarks come as experts debate whether to cut New Zealand's official cash rate (OCR) in the coming months, in the wake of declining inflation. 

But Conway, responding to questions after a keynote speech on Tuesday, said while he didn't want to pre-empt the future path of the OCR said non-tradable inflation was "a long way" from the RBNZ's target range of between 1 and 3 percent. 

"Yes, inflation - at 4.7 percent - was a little bit below our 5 percent pick for the December quarter of last year," he said. "But you need to dig into it and non-tradables inflation... at 5.9 percent, non-tradable inflation is a long way from 2 percent." 

New Zealand had "a ways to go" on the domestic inflation battle, Conway said, arguing the economy was "getting there, we're making progress but... it's a long way to 2 percent". 

"We're very mindful of what's going on within all of the inflation basket - I think our focus on... what parts of the consumer price basket can we influence? 

"We've got a lot of research digging into inflation; what drives inflation? What drives different bits of inflation? 

"I'm not sure we can rely on globalisation as much as we have in the past to achieve our inflation target; shipping prices have recently just come down to pre-COVID levels... and now they're starting to bounce back up again - it's significantly more expensive to ship [when not going] through the Suez Canal," Conway said, referring to trading routes being disrupted by attacks on the Red Sea by Houthi rebels from Yemen.  

December's 4.7 percent annual inflation rate, reported last week, was the first time in more than two years the consumer price index had been below 5 percent. 

Those figures and Conway's speech come ahead of the RBNZ's next monetary policy review on February 28. 

Paul Conway.
Paul Conway. Photo credit: RBNZ

Conway added non-tradable inflation had remained "stickier" and more persistent than tradable. 

"In New Zealand there are various reasons for that - we are quite an unusual economy... in many different ways. Our markets tend to have this trade-off between competition [which] is very good for low prices and efficient businesses, but so is scale - so big businesses tend to be more productive and, therefore, capable of passing on low-prices to consumers." 

The RBNZ has left the 5.5 percent OCR unchanged for its past five meetings, after tightening it 12 consecutive times before that.