The problem with the Reserve Bank's optimistic forecasts about inflation dropping away is as follows: insisting overseas factors, like the war in Ukraine, are to blame, is the same as saying that factors beyond the control of local policy makers are at fault. Since these factors are unpredictable, as none of us have any idea what's in Mr Putin's mind, there's little basis for the likes of Deputy Governor Hawkesby to claim inflation will be ‘significantly’ lower in 12 months time.
The Economists Intelligence Unit presented the graph below on 31 August, 2022. It shows how the ramp-up in our inflation rate in 2021 drew scant reaction from our authorities. The RBNZ's grave mistake was its slowness to react. The grave mistake that it is on the verge of making right now is hiking interest rates so steeply in the coming months that it brings the Kiwi economy to a standstill and causes unemployment to sharply rise. Two wrongs don't make a right.
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