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China Should Act Early To Avoid Balance Sheet Recession


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The RBNZ's preferred gauge of core inflation (sectoral factor model) accelerated to +4.8% Y/Y in the second quarter, rising further above the upper end of the +2.0%-4.0% Y/Y target range and hitting a new all-time high in data series going back to 1993.

  • The entries for the three preceding quarters have been revised higher and now indicate that the gauge has been in breach of the RBNZ's tolerance band since 4Q2021.
    • 3Q2021 reading revised to +4.6% Y/Y from +4.2%
    • 4Q2021 reading revised to +4.2% Y/Y from +3.8%
    • 1Q2022 reading revised to +3.7% Y/Y from +3.5%
  • The Reserve Bank's assessment from last week's monetary policy review that its "core inflation measures are around 4 percent" now sounds somewhat outdated.

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