Currency impact on inflation shouldn’t worry policy makers - ANZ

According to analysts at ANZ, recent currency volatility has raised questions about the possible pass through to core inflation and suggest that this concern is likely misplaced.

Key Quotes

“Typically speaking the impact on CPI inflation from currency changes is transitory, and thus the implications for core inflation and monetary policy are limited.”

“Key for the inflation outlook, and thus the policy path, will be expectations around the fundamental drivers of inflation like the output gap, wages and employment.”

“That said, this is not iron clad. Policymakers may be more sensitive to currency moves when the output gap is significant and inflation is far from target.”