Adrian Orr Photo: RNZ
The level of inflation business leaders and forecasters are predicting is concerning the Reserve Bank governor.
The recent Reserve Bank (RBNZ) inflation expectations survey showed the two-year rate - which is closely followed by experts - at 2.5 percent, while one-year expectations were above 3 percent.
The quarterly RBNZ survey samples 30-50 respondents, including business leaders and forecasters.
Speaking at the Waikato University's annual economics forum, Adrian Orr steered clear of talking about interest rates ahead of this month's official cash rate (OCR) decision.
But he said the current inflation expectations of industry leaders was concerning.
"Those expectations feed into their pricing decisions, their wage demands, their general behaviour," Orr said.
"This is where inflation expectations can become self-fulfilling."
Orr emphasised the central bank's focus on core inflation pressures.
ASB senior economist Mark Smith, said this suggested OCR cuts "are not on the immediate horizon".
"While the upcoming February MPS [monetary policy statement] meant that Orr could not explicitly comment on OCR settings, the sense from the speech was that there was no imminent hurry to either raise or lower them," Smith said.
The government requires the Reserve Bank to keep inflation between 1 and 3 percent over the medium term, with a 2 percent mid-point. Temporary fluctuations can be discounted as long as the bank meets the medium-term target.
In the speech, Orr said that target remained appropriate.
But setting a specific timeframe to achieve it was out of the question for a number of reasons - one being the effects of monetary policy on inflation changing over time.
"Key data is also released with a significant lag. That means we are prone to large revisions, we're prone to the use of estimates," Orr said.
As an example, he highlighted the recent revision to Stats NZ's economic growth data.
"These realities make achieving [the] 2 percent inflation target with precision today - or any specific date - impossible."
The Reserve Bank's next official cash rate decision is scheduled for 28 February.