• We expect the CPI to register a quarter-on-quarter drop of 0.2%, which would lift the annual inflation rate from 1.7% to 1.9% – still just on the low side of the inflation target mid-point.
• But in a year’s time inflation pressures will become more noticeable. One surprising thing about the recession was that it didn’t dampen inflation pressures a great deal.
• The degree of spare capacity will steadily shrink over the next couple of years, and at some point the RBNZ will have to take the punchbowl away.

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