Reserve Bank provides more soothing words on inflation

Thursday, 19 February 2026

Reserve Bank chief economist Paul Conway has admitted the bank experienced a “significant miss” when it forecast in November that inflation would drop to 2.7% in the final quarter of last year.

But appearing in front of MPs this morning, the bank defended its continuing confidence that a fall in inflation remains on the cards.

The central bank’s latest forecasts suggest a fall in inflation from the last recorded rate of 3.1% is already under way and that it will decline to about 2% early next year.

Its take on inflation underpinned the mildly dovish monetary policy statement it issued on Wednesday, when it brought forward its forecast of when it would need to raise the Official Cash Rate, but only by a few months.

Read more:

• Reserve Bank holds OCR at 2.25%, says recovery ‘still at an early stage’

• Inflation inches above Reserve Bank’s target band, climbing to 3.1%

• Reserve Bank governor Anna Breman gives market a nudge in 'unusual' move

A key assumption it made was that it was likely to see “some growth in the economy without inflationary pressures in the near term”.

The bank’s interest rate track now forecasts it is most likely to raise the OCR by 25 basis points to 2.5% during the final quarter of this year. It will review the OCR on October 28 and issue its final monetary policy statement for the year on December 9.

Appearing in front of Parliament’s Finance and Expenditure select committee, Reserve Bank governor Anna Breman noted inflation was outside its target band.

“It’s high and we're not at all comfortable with having inflation at that level.”

But she said the bank had looked carefully at the inflation data and noted the December quarter figure was mainly due to so-called “tradeable” or imported inflation and “administrative inflation” — which includes inflation caused by regulations such as those governing electricity lines charges.

“It was mainly tradeables; things like airfares and foreign accommodation and also fuel prices, and they tend to be very volatile.”

Breman said the bank had discussed at length the risk those types of inflation might be more persistent going forward, but could already see from some January data that some of that was falling back.

“Foreign accommodation fell by almost 15% in the January numbers. So that gives us confidence that some of that will fall out of the statistics.”

Breman said that while there could be new shocks, the economic fundamentals were “very clearly in favour of inflation falling going forward”.

“Wage growth is modest. We do have spare capacity.”