Looking past the temporary dip in inflation in the first quarter, which was partly driven by government decisions, there have been some encouraging signs about the outlook for inflation in New Zealand. But while capacity pressures do appear to be growing, in recent years the relationship between capacity and inflation has weakened. As such, inflation will probably remain below the middle of the RBNZ’s 1-3% target for some time yet and interest rates may not rise until late 2019 or even 2020.
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