RBNZ Chief Economist Conway says Middle East conflict complicates monetary policy like all supply shocks, adds nderstanding how firms respond to cost shocks is crucial in maintaining low and stable inflation

Says: Despite easing prices, the effects of the shock are expected to continue impacting the economy for some time. Monetary policy can prevent initial price effects from becoming secondary inflation pressure.  Medium-term inflation expectations remain well anchored, which should help limit pass-through.  Further reduction in monetary stimulus is likely to be required.