august of 730. put in more familiar terms, conditions have eased by the equivalent of a 2. 7 percent fall in interest rates with unchanged exchange rate ; or by the equivalent of a 5. 4 percent fall in the exchange rate, with unchanged interest rates. this is a considerable easing in monetary conditions, which will not have its main effect on activity and inflation until well into 1998 - at about the time the economy is also experiencing a strong stimulus from reduced tax rates and increased government expenditure. in other words, the suggestion that the reserve bank has been braking the economy in recent months is factually wrong. in fact, over recent months the opposite is true. we will, of course, be weighing all these factors and more in reaching our judgement for the appropriate level of monetary conditions in the december quarter. we will publish our considered judgement on 18 september. unfortunately, given the long lags between actions taken by the reserve bank today and the impact of those actions on inflation, nobody will know until at least the second half of next year whether we should have eased rather more in june 1997, or indeed whether we should have kept things a little firmer. of one thing you can be certain. we will do everything in our power to keep inflation within the target which has been agreed with the government. that will not guarantee you a profit in fruit - growing, or in exporting more generally. it will, however, be the best contribution which the reserve bank can make to the creation of an environment where you and others can make rational investment decisions, to the ultimate benefit of all new zealanders.

levies for light vehicles ) has also held inflation lower since the september 2015 quarter ( figure 7 ). figure 6 : telecommunication services ( contribution to annual cpi inflation ) ppts ppts 0. 2 0. 2 0. 1 0. 1 0. 0 0. 0 - 0. 1 - 0. 1 - 0. 2 - 0. 2 - 0. 3 - 0. 3 - 0. 4 - 0. 4 source : statistics new zealand. 1 richardson, adam ( 2015 ) “ can global economic conditions explain low inflation in new zealand? ”, rbnz analytical note, an2015 / 03. figure 7 : other transport services ( includes vehicle relicensing fees ; contribution to annual cpi inflation ) ppts ppts 0. 2 0. 2 0. 1 0. 1 0. 0 0. 0 - 0. 1 - 0. 1 - 0. 2 - 0. 2 - 0. 3 - 0. 3 - 0. 4 - 0. 4 source : statistics new zealand, rbnz estimates. other cyclical developments have also contributed to weakness in non - tradables inflation. new zealand experienced a sharp decline in the prices of its exports over 2014, following a boom in commodity prices that had seen new zealand ’ s terms of trade reach a 40 - year high. the key driver of the fall was a substantial decline in the global price of dairy products ( figure 8 ). figure 8 : new zealand ’ s export commodity prices ( usd, by sector ) index dairy meat, pelts, and wool forestry aggregate source : anz bank. a number of developments contributed to the fall in dairy prices over 2014. a broad range of commodity prices declined over that period in line with the sharp decline in the price of oil, likely reflecting a combination of weaker global demand and the pass - through of lower energy costs. more specifically in the international dairy market, supply increased substantially – particularly in europe following the relaxation and subsequent removal of production quotas that had been in place for nearly 30 years. this drop in new zealand ’ s commodity prices acted as a headwind to the domestic economy, reducing on - farm investment and rural spending. the flow through to demand in the economy more generally ultimately contributed to weaker domestic inflation. a key structural development that has led to persistent weakness in inflation has been the stronger growth in new zealand ’ s potential output ( figure 9 ). this has enabled the new zealand economy to grow at a robust pace without generating significant inflation,