An economist says the new Reserve Bank Governor's focus on convincing people inflation should sit at around 2% will be one to watch.
Under the Policy Targets Agreement set out by the Government last month, the inflation target band of 1% to 3% remains, but with a new focus to keep it near the midpoint of 2%.
In his first speech, Governor Graeme Wheeler said the agreement reinforces the importance of price stability and getting inflation near the 2% target should help anchor inflation expectations over time.
Westpac chief economist Dominick Stephens says inflation spent almost all of the last decade close to the top end of the target range.
And he says inflation expectations are still above 2%.
Mr Stephens says surveys show that people tend to expect inflation to exceed 2% and quite possibly they will then behave as though inflation will exceed 2% in terms of their wage demands and how they set prices for goods and services in the case of businesses.
He says that can create a self fulfilling dynamic.
"There has been a change in the policy targets agreement and effectively Mr Wheeler is charged with keeping inflation a little bit lower than Allan Bollard was and it will be interesting to see how quickly he persuades people of his intention to do that".
Mr Stephens says it's very useful if central banks can persuade people where the inflation target is and that although inflation will vary from year to year the intention is to keep it at a certain level.
