The new governor gave a confident first formal talk to business owners at a lunch hosted by Business Canterbury at Christchurch’s Air Force Museum yesterday.
This followed her first official cash rate decision for an unchanged 2.25% in an update last Wednesday.
Annual inflation was sitting at 3.1% late last year and outside of the 1% to 3% target.
Mindful that markets would be following her speech, the Swede veered off her notes a bit apprehensively, mocking herself for mixing up "anonymous" with "unanimous" in the call to hold the OCR.
Dr Breman said the projection for the NZ economy was looking pretty good after three years of almost no growth.
"Now we are saying that growth will broaden and we are going to see growth coming to more sectors. We have seen the agriculture sector performing well and high commodity prices ... manufacturing is actually also performing well and is looking better going ahead and the place we are still a bit uncertain is the household spending."
Unemployment was still high at 5.4% and wage growth was, overall, modest, but that showed there was still "spare capacity" in the economy, she said.
She advised business leaders that householders, as a result, would react unfavourably if firms tried to pass on big price increases as they were already experiencing higher priced essential items such as food and electricity.
The other risk to Reserve Bank projections for economic growth in the year ahead was further afield.
"There could be some global event that we don’t see coming or some geo-political tensions ... or something really unexpected and then that might affect exporters or just getting some sort of higher price pressure again. But the most clear risk right now, I think, is that households are a bit cautious."
Average house prices have generally flatlined since Covid-19, or fallen in some markets.
Dr Breman said the economy could grow from an improved labour market if there was not a strong rebound in house prices.
"There are some parts of the country that have seen stronger growth for some time," she said pointing to Canterbury. "And now it’s time for the whole country to lift."
The bank would adjust and adapt to global shocks, she said.
She said the bank’s role was to keep inflation low and stable and steer forward-focused monetary policy.
"So when inflation like now is at 3.1% we are not happy with that — that is outside our target band — and not where we are comfortable, but our task is to bring inflation back."
She was confident inflation would be reared in to a 2% midpoint in the target band within the coming year.
But she cautioned the results of OCR changes took time with "peak effects" normally arriving in six to nine quarter years.
Contributing to inflation being pushed up in the final quarter of last year was administrative inflation such as council rates, university fees and vehicle licensing.
Dr Breman said they were a bit concerned local council rates might continue to rise, but core inflation had been steady.
"We have seen a few tough years behind us but, like Canterbury, it’s looking better and we will get more broad based growth in the NZ economy."
The reserve bank was keeping a close eye on risks such as the economic recovery pushing inflation up, extreme weather events, the exchange rate, global food prices and government expenditure.
Business Canterbury chief executive Leeann Watson said Canterbury businesses had focused on putting better structures in place when facing strong economic tailwinds and this was paying off.
The region’s unemployment was 3.7% and more than 900 jobs were being advertised every week.
"This year has real momentum and confidence is steadily picking up the last 12 months and is starting to show in sales conversions and forward planning."
