) was increased by 2 percentage points. the drivers of low inflation there are a number of usual suspects cited for what is causing low inflation. many of them are slow - burning structural changes taking place throughout the world, some of which have been covered in depth at this conference : globalisation : global supply chain integration has lowered the costs of manufactured goods. 1 technological changes : new technologies and low - cost software services are continually driving down prices for these goods and services. 2 demographics : populations are ageing in many countries, increasing savings and decreasing inflationary pressures. 3 labour market dynamics : labour markets and work practices are evolving around the world, creating more capacity and less wage pressure than in the past. 4 these are deep and fundamental issues that deserve further research to truly understand their contribution to low inflation, and the policy implications for central bankers. however, while these types of structural factors are likely to explain part of the reason why inflation has been low, they cannot explain the whole story. 1 auer, borio, and filardo ( 2017 ). 2 spencer ( 2017 ). 3 liu and westelius ( 2016 ). 4 duca ( 2018 ) ; bracha and burke ( 2017 ). this is because many of these issues are long - term developments that have been playing out over decades. so they struggle to explain the relatively abrupt weakness in inflation since the gfc or during the period of 2012 to 2016 when inflation was particularly low in new zealand. this suggests that there have also been more short - to - medium - term cyclical factors keeping inflation low. our analysis of the new zealand business cycle highlighted a number of global factors that kept inflation lower than expected through this post gfc period, including : 5 global growth : underlying demand in advanced economies has been weaker than expected following the gfc, resulting in excess spare capacity and less inflationary pressure. nz dollar : the extent of monetary stimulus from foreign central banks required to offset this economic weakness put upward pressure on the new zealand dollar ( figure 2 ), resulting in weaker tradables inflation. ( more broadly, this factor raised questions about the ability of small open economies to operate independent monetary policy during the low - inflation period. ) commodity prices : global commodity prices were weak during this time ( figure 2 ), with both weak import commodity prices ( especially oil prices ) weighing on tradables inflation, and periods of weak export commodity prices ( especially dairy ) weighing on domestic incomes. figure 2 : us dollar and commodity

tools would be needed in the response to any future adverse shock. conclusion i hope that sharing our experience in new zealand has helped advance the discussion of inflation dynamics in the asia pacific region, and the role of central banks in this evolving story. thirty years ago the reserve bank adopted an inflation targeting regime to deal with inflation that was too high, and we spent the next twenty years largely focused on the challenge of ensuring inflation remained down at its target. in more recent times, it feels like everything that central banks learnt and practised in those early years has been flipped upside down : the challenge now is to lift inflation, not bring it down ; interest rates in several countries are negative, not positive ; fiscal stimulus can be welcomed as supporting our monetary policy goals, not criticised as conflicting ; higher wage growth can be greeted as a natural consequence of stimulatory monetary policy, rather than the spectre of a wage - price spiral ; and rising inflation expectations can be seen as a sign of success, not an indicator of failure. while some of these elements of inflation targeting feel like they have been flipped around, we believe that some core elements of inflation dynamics have remained just the same. in particular, our assessment is that monetary policy is still effective in influencing inflation in new zealand, through a number of channels. this is one of the factors that motivates our continuing determination to set policy, whether with conventional tools or unconventional tools, to achieve our dual mandate of price stability and maximum sustainable employment. kia ora tatou. thank you. references auer, r., c. borio and a. filardo ( 2017 ), ‘ the globalisation of inflation : the growing importance of global value chains ’, globalisation and monetary policy institute working paper, no. 300. ball, c. ( forthcoming ), ‘ employer concentration and income growth in new zealand ’. ball, c., n. groshenny, o. karagedikli, m. ozbilgin and f. robinson ( forthcoming ), ‘ low wage growth and job - to - job transitions : evidence from the administrative data in new zealand. borio, c. and b. hoffmann ( 2017 ), ‘ is monetary policy less effective when interest rates are persistently low? ’, bis working paper, no. 628. bracha, a. and m. a. burke ( 2017 ), ‘ wage inflation and informal work ’, federal reserve bank of boston : current policy perspectives,