• rmacculloch

The Politics behind NZ's 30 year high rate of inflation

Today it has been announced that inflation is running at a three decade high of 5.9 per cent. Expect the Reserve Bank and government to politicize this number. How? The RBNZ, which has started to act more like a political party than a Central Bank, together with the Finance Minister, will almost certainly run the line that our record inflation rate has nothing to do with this country's policies, but instead has come from overseas. That is, the argument will be that the whole world is experiencing inflation which has inevitably crept across our border (since it can't be put into a Managed Quarantine Facility) so that is what one should expect.

Okay. So that's a highly politicized line. It's actually a difficult business to precisely track the fundamental drivers of our record inflation. Whereas the RBNZ and government will blame oil and supply-chain issues, what they won't say is that our borders, which are effectively shut, may have choked off the ability of a vast range of Kiwi businesses (and schools and universities and hospitals) to hire workers for which there are skill shortages. Which has put upward pressure on wages. Also, the authorities won't for one second link the $100 billion Quantitative Easing Program with the price rises. So the causes will be subject to spin.

By the way, we commented back in April 2021 how the Reserve Bank seemed blithely unaware of the inflationary pressures erupting in the country. Its Monetary Policy Committee stated at that time how "medium-term inflation .. would likely remain below its remit targets [of 1-3%] in the absence of prolonged monetary stimulus" and that "Inflation expectations remain at or below the 2 percent target midpoint". We took the opposite view and commented, "Our 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".

Then in May 2021 we wrote, "the RBNZ's Monetary Policy Committee seems to be the only group in the country which doesn't think prices are on the rise". Why? Since in May 2021 ANZ chief economist Sharon Zollner said,"Reported costs are through the roof". And in May 2021 while Sharon was talking, the RBNZ was still furiously printing money - its "Quantitative Easing" Program wasn't brought to a halt until July 2021! It beggars belief.