Trump policy as an inflation risk: New Zealand's central bank warns of more volatile times

The chief economist of the Reserve Bank of New Zealand (RBNZ), Paul Conway, expressed concerns regarding the economic policy plans of the designated U.S. President Donald Trump, which could pose a risk to inflation in the medium term. However, a formal modeling of potential impacts has not been undertaken yet. Conway stated that Trump's political agenda could potentially lead to rising prices, which might result in increased inflation fluctuations in the future. But given the unclear implementation of Trump's numerous announcements, it is premature to react to them, the economist told a parliamentary committee. Definitive actions by Trump could trigger a trade war, particularly through the announced introduction of a 25% tariff on products from Mexico and Canada and a 10% tariff on goods from China—the three main trading partners of the U.S. This could also affect the New Zealand economy, which is heavily dependent on trade, accounting for 54% of its gross domestic product. Christian Hawkesby, deputy governor of the RBNZ, emphasized the necessity to test extreme scenarios and put the economy's resilience to the test. Already on Wednesday, the central bank cut interest rates for the third time in four months and announced further monetary easing to counter a weakening economy and moderate inflation. For 2025, the RBNZ expects an economic recovery, also facilitated by low interest rates, which should boost real estate prices and encourage investments and spending, with prices possibly rising by 6.8%. Nevertheless, Conway warned against overly high expectations: "We do not predict a boom in the real estate market, but we see a bit more dynamism than in recent years.