RBNZ’s Orr Warns of Prolonged Period of Faster Global Inflation
(Bloomberg) -- New Zealand central bank Governor Adrian Orr said climate change could lead to a prolonged period of faster inflation that requires a monetary policy response.
“Some of the price pressures we will see will lead to quite sustained, higher generalized prices,” Orr told a virtual press briefing Tuesday in Wellington after the Reserve Bank released a report on climate change. “We’re already seeing that in food prices globally and energy prices, transport, at present.”
The global transition to a carbon-neutral economy could cause economic disruption similar in scope to the period of subdued growth and rampant inflation during the energy crisis in the 1970s, according to a paper published by the Peterson Institute for International Economics in August.
Orr warned today that rising global temperatures will cause price shocks, for example by making farming more difficult in traditional areas and reducing crop yields.
“We will have to look through some very obvious price shocks but to the extent that they are persistent and truly changing the price of the basket of goods and services we consume, then there will be monetary policy reactions,” he said.
Orr noted the current price shocks caused by supply-chain disruptions during the pandemic have proved to be more persistent than many expected.
“We’ve all talked about them, we all knew they were coming, we all said they may be temporary,” he said. “Now the general discussion is wow, these are persistent. Imagine that continuing now for the next 20-plus years. That is the world that we will be living in.”
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