New Zealand's annual consumer price inflation (CPI) has remained low over the past several years. In fact, inflation has been unusually lower given levels of economic activity and import price trends. The observed low inflation has surprised both the Reserve Bank of New Zealand (RBNZ) and the external/professional forecasters. Figure 1 shows that 1- and 2- year ahead inflation forecasts by both professional forecasters and businesses1 signifi- cantly overshot inflation out-turns over recent years.