Greg Mankiw has an interesting post on what would make a good inflation target (ht CPW). According to work by Ricardo Reis and himself, aiming at the nominal wage is a good way of ensuring the highest degree of price stability – according to models calibrated to recent US data (paper here *).
Using this conclusion he shows a graph of private hourly compensation growth and states that inflationary pressures in the US are not as much of a threat as some analysts are positing.
If the same implication held in New Zealand (which there is no assurance of), how would we be looking:
Source, QES wage data Statistics New Zealand (*)
Not so good it seems 😛