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  • Robert MacCulloch

This is a non-partisan economics blog which may lead to sometimes supporting polices of a party on the right and at other times of a party on the left. So the following comment is not an endorsement of one party over another, but more just an observation about the extent to which economic debates are happening within our parties. On that note, whatever one's personal views of political commentator, Matthew Hooton, I concur with him, from my own experiences, when he writes in the NZ Herald today:


"No such debate [on economic policies] is possible in today's National because, with some exceptions, the MPs the party sends to Wellington lack the life experience, background knowledge, intellectual resources, personal inclination and social networks to even have them. They have no idea what a post-Key National Party might look like, or even why that issue needs to be addressed. They are preoccupied with themselves and events in Parliament, oblivious that no one cares. They do not know how to think about a problem, spend the necessary months deeply engaging with those working on or affected by it, reviewing ideas about how to tackle it, and then designing an effective and hopefully popular way to fix it. Mostly, their policy gets bashed out a day or so before it is announced, or is just picked up from some Wellington industry group".


The primary issue on the minds of the Nats right now is some vague notion that we live in an era of celebrity culture and that they need a (new?) presenter to front their party who becomes at least as popular and as much of a celebrity as our current Prime Minister. Deep reflections on economic policy are a million miles from their minds.


For sources, see:

https://www.nzherald.co.nz/business/matthew-hooton-my-message-to-national-and-how-to-avoid-another-leadership-fiasco/3ICPGRQE54W552NIWZQY6GPIXY/

  • Robert MacCulloch

The RBNZ has just announced that it is not changing the Official Cash Rate, which is at 0.25 percent, thereby keeping interest rates at historic lows. The "Summary Record" of its Monetary Policy Committee, however, is a bit confusing. My interpretation is that they know in their hearts it was a mistake going down the road of the $100 billion quantitative easing program and now are clinging onto their previous dire economic assessments to avoid admission of that mistake. Other countries may have engaged in such polices, but NZ's situation never came close to justifying such a radical monetary policy strategy.


First, we see a formal acknowledgement from the RBNZ that it's contributed to our super pricey housing market (and thereby wealth inequality) when it states how "stimulatory monetary policy is playing a role in lifting house prices".


Second, the Monetary Policy Committee dismisses concerns about price rises in (non-property-related) consumer goods & services. Yet earlier this week an NZ Herald news headline screamed "Prices rise as Cost Pressures build on Business". The latest NZ Institute of Economic Research's Quarterly Survey of Business Opinion revealed cost pressures are growing - retailers feel increasingly confident they can raise prices. A net 8 per cent of firms raised prices in the March quarter - a turnaround from the net 2 per cent which cut prices in the previous quarter. The NZIER says that "these results suggest a pick-up in inflation pressures over the coming year". And the latest Retail Radar survey of Retail NZ members showed two thirds of retail businesses expect to see prices rise over the next quarter.


The Monetary Policy Committee plays down these "near-term price increases" as a "temporary" state of affairs. My prediction is that the cost of living is on the way up in NZ and interest rates will be going up sooner rather than later.


For sources, see:

https://www.rbnz.govt.nz/news/2021/04/monetary-stimulus-continued


https://www.nzherald.co.nz/business/prices-rising-as-cost-pressure-builds-on-business-nzier/ATJ7XS5ROGPYN7BY53TCT5766E/

 

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