Finance Minister Robertson has repeatedly blamed the Russian invasion of Ukraine and other "global" factors for NZ's high inflation rate. Many journalists bought into this narrative when the oil price was shooting upwards. Robertson said just a few months ago, in May of this year, "we now have highly elevated global inflation, exacerbated by the war in Ukraine which is driving significant cost of living pressures for businesses and households alike".
Today it was announced inflation has barely changed over the past September quarter, coming in at 7.2 percent the past year. The Herald reports:
"The main driver .. was housing and household utilities. Rising prices for construction, rentals for housing, and local authority rates were all pushing up prices .. and in the latest quarter, vegetable prices rose an astonishing 24 per cent".
So how are Auckland housing costs and City Council Rates affected by the Ukraine war? What is the mechanism? Okay, maybe fertilizer prices have gone up, but has that added 24% to the cost of a tomato grown in the Bombay Hills? NZ has a floating exchange rate which means high inflation in other nations doesn't have to translate into high inflation here. Instead our currency can simply adjust by appreciating relative to high inflation countries.
The primary reasons for our high inflation are, of course, whacko monetary policy and government deficit spending, combined with a breakdown in competition in the domestic economy. The big players have become entrenched, including in health-care and education. After all, Fletcher Construction was given a massive public payout courtesy of the wage subsidy scheme and supermarket chains were the only outlets who could sell food, by law, during the lock-downs. This government's dismissal of "supply side" reforms to lower cost structures has greatly exacerbated prices. Putin just doesn't figure.
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