Evening the odds

When the RBNZ last released its economic projections in the September Monetary Policy Statement there were two key judgements that drove their thinking:

1. That dairy prices would stay low for an extended period following their sharp fall in the first half of the year. 
2. That NZ CPI inflation would get quickly back towards target in the first half of next year; due to the sharp fall in petrol prices dropping out of the annual CPI measure and the weaker NZ dollar in 2015 generating higher tradeables inflation.   

Since the September MPS, both of these assumptions have unwound sharply.  

Dairy prices have bounced around 40 - 50%, relieving some of that pressure on the NZ economic activity and income, and lifting medium-term inflation pressures in 12-18 months.