In an extraordinary powerful report published today by the NZ Initiative, called "How Central Bank Mistakes after 2019 led to Inflation", former Reserve Bank Governor Graeme Wheeler, together with one of this country's best economists, Bryce Wilkinson, writes the following:
"Some Central Bankers suggested that global forces are the main cause of rapid inflation & pointed to commodity price increases flowing from damaged supply lines due to Covid restrictions .. and Russia’s invasion of Ukraine .. But these are not the main drivers of inflation .. The main cause of inflationary pressures lies in the errors of judgment made by central banks in conducting monetary policy during the Covid pandemic".
However, on 25 February 2022, Radio NZ ran the following headline:
Inflation largely driven by factors out of New Zealand's control - RBNZ governor
The Finance Minister Grant Robertson has run an identical "beyond our control" line regards the Kiwi inflation rate (of over 7%). Of course, Robertson is fully entitled to run that line since it is political spin designed to avert blame and stop voters turning off Labour as incompetent economic managers. After all, he is a politician seeking power.
However, it is not the place of a Central Bank Governor to engage in the politics of spin. When it comes to explaining the causes of inflation, the RBNZ should have done an econometric analysis where the contribution to our inflation coming from quantitative easing / money printing, from a low Official Cash Rate, from government spending, from the recent rise in oil prices and more, are each statistically identified and estimated.
The RBNZ has not done such an analysis.
As a consequence, it has morphed into a political party engaged in a populist quest for support by arrogantly asserting all manner of opinions, dressing them up as facts. Radio NZ, to avert accusations of bias, should now tell the other side of the story. As the Forward to the NZ Initiative Report says (written by a former Bank of Canada Deputy Governor) regards central banks, including our own, "Too much hubris, not enough humility".
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