. lower oil prices should bring several benefits to our economy. if supply - side factors are the major cause and oil prices remain around usd 50 per barrel, the cost of new zealand ’ s annual petroleum imports would fall by about nzd 2. 3 billion or 1 percent of nominal gdp compared with the price in mid - 2014. it would represent a significant boost to household disposable income of around $ 600 per annum per household. if the main driver is weakening global demand, this would point to ongoing weakness in new zealand ’ s export incomes. lower oil prices pass directly and quickly into new zealand prices for petrol. for example, in the december quarter petrol prices detracted 0. 3 percentage points from headline cpi inflation, and we expect a larger effect in the march quarter. over following quarters, lower petrol prices pass into lower input costs and lower prices for other firms – e. g. through lower freight costs. an important issue is how significant these indirect impacts of lower fuel prices might be, and to what extent they reduce households ’ expectations of future inflation. we will analyse this in the march monetary policy statement. oil inventory levels are increasing, and supply remains high, so oil prices are unlikely to recover in the near term. bis central bankers ’ speeches • housing we will be talking more about the housing market over the next few months. our concern about house price inflation is based on the risk it poses to financial stability and the broader economy. although it has not been a major factor in recent years, high rates of house price inflation can spill over into stronger spending and pressure on consumer price inflation. and the more that house prices get out of line with historic relativities, the greater the risk of a sharp correction, leading to financial instability. analysis by the imf in 2013 indicated that new zealand, along with norway, had the greatest deviation in house price to income ratios from its historic trends among several advanced economies. international house price - to - income ratios ( deviation from historical average, 2013 ) source : imf our focus is mainly on the auckland and christchurch markets as they represent around half of the national real estate market : they are where the housing shortages are greatest and where market pressures are the most intense. auckland and christchurch house prices are 39 and 27 percent respectively above their 2007 levels. house price inflation slowed as the loan - to - value ratio restrictions and the rise in mortgage interest rates helped to constrain demand, but appears to be increasing again in auckland

certainly, new zealand ’ s growth performance relative to other oecd countries has been markedly better in the 1990s than in the previous two decades, although given all the other economic reforms which took place in new zealand in the late 1980s and early 1990s it would certainly be inappropriate to attribute that improved growth performance primarily to the inflation targeting regime. as an aside, it is perhaps worth stressing what has come as something of a surprise to some people in new zealand and that is that our inflation range has both a top and a bottom. one of our central banking colleagues once said to me that he thought that any fool could get inflation below 2 per cent by simply keeping monetary policy tight at all times. i agreed. but that is assuredly not the way we see inflation targeting, and of course it is not the way our inflation target is specified. our obligation, currently, is to keep inflation below 3 per cent and above zero. i would not expect to be dismissed the instant inflation fell below zero, any more than i was dismissed when there was a small breach of the top of the target. indeed, the policy targets agreement recognises that there may be quite legitimate reasons why inflation may, on occasions, move outside the 0 to 3 per cent target range. but there would certainly be questions asked if inflation fell below zero, and i would need to have a good explanation of that outcome. we began easing monetary policy in december 1996 – and eased aggressively throughout 1998 - precisely because we take the bottom of the target as seriously as we take the top. brooks, ray, ‘ inflation and monetary policy reform ’, in australia : benefiting from economic reform, 1998. the formulation of monetary policy let me talk briefly about the actual achievement of the agreed inflation target, about the formulation of monetary policy. does an inflation - targeting framework help in the actual delivery of price stability? i think it does, in three ways. first, having an explicit inflation target is useful in anchoring inflation expectations and thus affecting wage - and price - setting behaviour. i have already mentioned that in the discussion of the results of the adoption of the new framework. we in the reserve bank devote a very considerable amount of energy to explaining what we are doing and why, not just to the financial markets but to the public more widely - groups of farmers, manufacturers, rotarians, teachers, lawyers, anybody who will listen. i myself do more than 100 speeches all over the country in an average year, and my colleagues do a