The Reserve Bank Governor warns of inflation risks if high oil prices persist

The Reserve Bank Governor is warning near term inflation could be higher than it forecast just last month, should recent increases in oil prices persist.The Governor addressed the economic outlook during a visit to Dunedin on Tuesday.In notes posted on the Reserve Bank website, Dr Anna Breman said the economy was showing signs of growth, although the recovery was being felt unevenly across the country."The recent GDP figures showed economic growth was 0.2 percent in the three months to June, despite the effects of high oil prices and other global headwinds. Other data suggest that the economic recovery is continuing in the current quarter but remains uneven," Breman said.However, oil prices appear to remain a big concern for the Bank, and Breman warned they could affect inflation."Recent increases in global oil prices and longer-term interest rates reflect the challenging environment we face. If higher oil prices persist, they are expected to result in somewhat higher near-term inflation than we assumed in the September Statement."In recent weeks, the global price of oil has surged above US$100 a barrel, with pump prices in New Zealand hitting levels last seen in June.The price of 91 unleaded on the Gaspy fuel monitoring site on Tuesday was $3.34 a litre.The Governor noted the strength of the South Island economy, pointing to resilient exports, a lower unemployment rate and a stronger housing market.However, Breman said she expected conditions to improve across the country."We expect the economic recovery to strengthen and broaden, reflecting a resilient export sector and gradual increase in household spending," Breman said.She also expected the job market to show some improvement."As the recovery gathers pace, conditions in the labour market should improve. Purchasing power will increase as inflation returns to the 2 percent midpoint," Breman said.The Reserve Bank is due to review the Official Cash Rate in late October."As always, we will assess incoming data and global developments ahead of our next decision in October and remain focused on the outlook for inflation over the medium term," Breman said.