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  • rmacculloch

Let the Good Party Times Roll at the Reserve Bank of NZ - the architect of our Recession - no austerity there.

The Reserve Bank has doubled staff numbers in five years to 510, with personnel costs rising to $80 million in 2023 from $32 million in 2018 - up by a whopping 150%. I guess when you print $50 billion and flood markets with liquidity, causing runaway inflation that now requires the Bank to "engineer a recession" (in the words of the RBNZ Governor) to get it down, there's always spare cash floating about to spend on your own employees. Last year the Australian Financial Review said, "The latest data from across the ditch suggests NZ is the first advanced economy to enter into a bona fide stagflationary recession. Now its got worse - a double dip recession. Funnily enough, our Governor told Bloomberg News in 2021 it would never happen: "The fear of the 70s, the 80s, stagflation", he said, "it is such a different world”.  It's so different that for those with a long memory, it feels just like the 70s.

The upside of the 510 people working at the RBNZ now may be that one of them is at last able to produce some decent research on hot topics, like the effect of immigration on inflation. That, of course, assumes the extra staff hired were economists. No such luck. Instead the Reserve Bank's latest report on immigration was not even written by anyone at the Bank - it was sub-contracted out to consultants!?

The report itself is mostly a literature summary - but why hire an expensive consulting firm to go through some past economics papers on this topic? Can't the RBNZ staffers read it for themselves? What did the consultants find out? According to the RBNZ they "outline how migration can add to or reduce inflationary pressures depending on the size & direction of flows & the characteristics of migrants". Oh great - so immigration can increase or decrease inflation, meaning they don't have much of a clue what is its overall effect. We already knew that in the first place, because immigrants - wait for it - buy more stuff, adding to demand & inflation, but also, to the extent they get jobs, supply more stuff, which reduces inflation.

What did the Bank pay for that amazing insight that is not news to anyone? Who knows? The only thing we do know is that it is your money - and that not everyone in Wellington is anxious about cuts.



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