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Speaker 1: Now, the Reserve Bank Governor Anna Bremen has taken a

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Speaker 1: duvish tone. In her speech to Business New Zealand today.

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Speaker 1: She spoke about the war in Iran and it's likely

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Speaker 1: impact on inflation, and she says and immediate ocr hikers unlikely,

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Speaker 1: but things may change if the war continues.

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Speaker 2: I will not rule out neither retakes nor red cuts.

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Speaker 2: If we see that these higher fuel prices are transmitted

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Speaker 2: into higher inflationary precious overall in the economy, then we

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Speaker 2: would react with monetary policy.

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Speaker 1: Cameron Baggery is the founder of Baggery Economics and is

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Speaker 1: with us high Cam Good Evening. So basically she's going

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Speaker 1: to look through the short term stuff. Do you like

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Speaker 1: this approach?

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Speaker 3: Yeah, well it's central banking one o one. You know,

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Speaker 3: what we know from history is that we've seen numerous

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Speaker 3: occasions in the past twenty years, or if you go

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Speaker 3: back to the ninety seventies where oil prices go up

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Speaker 3: that gems up headline inflation. Well, odds are oil prices

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Speaker 3: go up, they come crashing back down about you six

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Speaker 3: to twelve months later. So your central banks will rightly

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Speaker 3: look through the first brand impact of hire and flow,

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Speaker 3: but they'll be really alert, as you pointed out to

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Speaker 3: the second round effects. If we start to see the

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Speaker 3: second round effects, and that's the time you got to

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Speaker 3: lead against it by lifting interest rates.

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Speaker 1: All right, So what are you picking for April eight?

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Speaker 1: No change?

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Speaker 3: No, I think the next inflation read will be critical.

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Speaker 3: Where we start to see a little bit of an

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Speaker 3: underlying pick up and inflation in the December quarter. The

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Speaker 3: Reserve Bank won't have wanted that to extend, so we'll

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Speaker 3: be looking at the non oil, non petrol components. But

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Speaker 3: the big viearer we've got to be watching out for

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Speaker 3: is just thing called inflation expectations. The inflation expectations are

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Speaker 3: a sign of a central bank's credibility. If you've got

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Speaker 3: a target of two for inflation, you sort of want

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Speaker 3: inflation expectations to be anchored around two. Now they're setting

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Speaker 3: at the moment around two point three, So two point

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Speaker 3: three is pretty close to sort of two. Close enough

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Speaker 3: is good enough. But if we start to see those

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Speaker 3: drift up to two point five, two point six something

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Speaker 3: like that, that's telling us that the central banks credibility

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Speaker 3: has been tested and new government particularly we're not like that.

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Speaker 3: So there's a whole numbers we're going to be looking

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Speaker 3: at including the impact on growth because I guess what,

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Speaker 3: you jam up oil prices, you can't spend as much

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Speaker 3: on other parts of the economy, so you've got an

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Speaker 3: inflationary shock and a deflationy shock on the other hand too.

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Speaker 1: Now I'm conscious it's only six days since we last

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Speaker 1: spoke to you, and when we spoke to you last

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Speaker 1: it was too hard basically put any number on what

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Speaker 1: we should expect inflation wise. Has the last six days

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Speaker 1: clarified that for you?

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Speaker 3: Well, we've still seen gender nomics. You just have a

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Speaker 3: look at what we've seen out of Donald Trump overnight. Yeah,

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Speaker 3: he thinks that him and Iran a getting close to

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Speaker 3: a deal, and Iran's fired back and said that's all

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Speaker 3: fake us So, but equity markets took it pretty positively. Overnight.

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Speaker 3: All prices were back down. We hope we're pretty close

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Speaker 3: to some sort of resolution, but you know, if someone

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Speaker 3: decides to sort of dig in, this could be a

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Speaker 3: bit more of a long drawn out of fear, and

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Speaker 3: the length of time here increases exponentially the collateral damage

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Speaker 3: on your economy and the rest of the profile for inflation.

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Speaker 1: Yea, hey, listen, Cam, thank you as always. I'm sure

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Speaker 1: we'll speak to you again soon. That's Cameron Baggery, the

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Speaker 1: founder of Baggery Economy Economics. For more from Hither Duplessy

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