‘ transitory ” does not mean ‘ here today, gone tomorrow ’. i learnt recently for instance that some businesses are bringing forwards their shipping arrangements for christmas stock. that will put further pressure on global capacity, extending an increase in shipping costs that started in late 2020 and had already exceeded my expectations, meaning that the current increase in shipping costs could have an impact on consumer prices at least until the end of the year. i also agree with the committee ’ s assessment in june that there are now “ two - sided risks ” around that central path, for both gdp and inflation. indeed for me that updated assessment is one of the most significant implications of developments since may, when the mpc still judged the risks to gdp to be skewed all speeches are available online at www. bankofengland. co. uk / news / speeches and @ boe _ pressoffice to the downside in the near term. for that reason i want to spend some time setting out what i see as the key risks and how they might evolve – a survey, if you like, of what new features future editions of our map of the economy might need to incorporate. two sided risks i should say right away that the downside risks to gdp and inflation from covid remain clear and present. although the uk ’ s vaccination programme has proved successful, the pandemic in the uk and the wider world is not yet over. it remains to be seen what the full impact of the new delta variant will be and how households and businesses respond to the combination of the current rise in infection rates and the impending lifting of remaining restrictions. starting with my first consideration, whether recent strength proves persistent or temporary. even absent a further impact from covid, it is unlikely that the current pace of gdp growth can be sustained for much longer. indeed if current strength represents a bringing - forward of the recovery that we had expected later in the year, then subsequent growth might if anything be expected to be weaker rather than stronger. the very latest indicators suggest the pace of underlying demand growth may indeed be slightly moderating, though as i mentioned previously the read from the latest gdp data itself is clouded by supply constraints. but there are certainly upside risks to household spending, if consumer confidence continues to rise or if households run down their accumulated aggregate savings faster than we have assumed. the current strength in the housing market is suggestive in this regard, both as a potential indicator of household confidence and due to the consumption of

can debate whether the bank ’ s monetary conditions index is correctly calibrated, whether a 2 per cent fall in the exchange rate is equivalent to a 100 basis point movement in 90 day interest rates. one can debate whether the bank ’ s trade - weighted index correctly measures movements in the new zealand dollar. one can debate whether the 90 - day interest rate correctly measures movements in new zealand interest rates. and i am familiar with all of that debate. ( we dealt with several of these issues in the march 1998 economic projections, and in my speaking notes for journalists in releasing that document. ) but if we accept, as i believe we must, that in a small, open economy monetary policy works to affect the real economy and, in that way, inflation through both interest rates and the exchange rate, then i don ’ t have the slightest doubt that overall monetary conditions have eased in new zealand in recent months, and indeed have eased quite considerably. that easing has taken the form of a sharp fall in the exchange rate which has been partly offset by an increase in short - term interest rates ( the increase in longer - term interest rates has been much more moderate ). i have often conceded that the mci is not a perfect measure of monetary conditions. we will continue to seek ways to improve it. but as a rule - of - thumb to guide financial markets between quarterly projections it has proven enormously useful. it has assisted us through a very major rebalancing of monetary conditions at a time of great turbulence in financial markets internationally, with an absolute minimum of drama. yes, interest rates have gone up, but given our balance of payments deficit - or in other words, our huge appetite for borrowing and our national aversion to saving - that should not be a matter for surprise or regret. if as a nation we become less enthusiastic about borrowing or more enthusiastic about saving, we can expect interest rates to decline to the levels which would seem to be justified by our low inflation. in conclusion, i think it is important that we all look at recent events objectively. right now, the new zealand economy is having to adapt to a complex set of circumstances, including an increase in government expenditure, a reduction in taxation, a changing housing market, and, coming rapidly over the horizon, the negative implications of the asian financial crisis. yet what we see is adjustment to these new circumstances, taking place within existing structures, without great drama. monetary policy, with its single focus on price stability and