Before the 2005 election, National and its allies spent a lot of time talking down the New Zealand economy, predicting a recession that never came. They’re playing the same game this year, pointing to persistent inflation (caused mostly by global rises in oil and food prices), the slowing housing market, the likelihood of a US recession, and instability in the global credit markets (caused by lax US regulation) as factors that will push New Zealand into recession. It’s part of National’s strategy of talking down New Zealand and talking up its problems.
In fact, our economy is in excellent condition to weather this ‘perfect storm’. Unemployment is at record lows, wages are growing fast: people are confident they’ll still have a well-paying job next year and that makes them confident to spend this year. Prices are going up because of global inflation of oil and food prices. Fortunately, New Zealand exports vast quantities of food and increasing amounts of oil, meaning that as prices at supermarkets rise so do export receipts and that flows into higher wages. Government finances are healthy. Unlike the US, our government has the luxury of being able to inject more demand into the economy by cutting taxes and increasing spending without going in deficit (if it cuts GST, the Government will boost demand and make a one-off negative impact on inflation too).
The only problem is the Reserve Bank, which insists it will not lower the interest rate until next year. Higher interest rates have succeeded in deflating the housing bubble. The Reserve Bank justifies keeping them high (to the cost growth and of our exporters, high interest rates mean a high exchange rate) because inflation is around 3% but there is actually little underlying domestic inflation. It is ridiculous for the Reserve Bank to keep rates high when that does nothing against high international oil and food prices. Ideally, the Reserve Bank Act should be changed to allow the Bank to take note of growth and unemployment when setting the interest rate (just as most central banks do) but that is not necessary, the Bank could just take a more real-world approach and stop punishing the New Zealand economy for the world’s inflation problems.
Tags: economy
March 17, 2008 at 2:44 pm
And the govt should stop punishing the people of NZ by over taxing and over spending.
BTW..seen this?
http://www.kiwiblog.co.nz/2008/03/electoral_corruption_allegations_in_australia.html
March 17, 2008 at 3:14 pm
They’re playing the same game this year, pointing to persistent inflation (caused mostly by global rises in oil and food prices)
No. As already pointed out previously here, non-tradable inflation has been persistently the cause of inflation in NZ, averaging 3.8% the last 12 months and 3.9% the last 24 months. Tradable inflation has been much lower at 0.7% and 1.6% respectively. Oil and food are mostly tradable.
Yes, the most recent Q/Q% non-tradable is higher than tradable - that is the first quarter since June 2006 to have occurred and only the second since the last election. Y/Y% tradables inflation has exceeded non-tradable inflation in only 8 quarters since 1988.
Since 2000, inflation has persistently been near the top end of the RB’s range, and most of that is due to non-tradable inflation (3.6% Y/Y%) not tradable (1.4%). So your basic point is wrong.
http://www.rbnz.govt.nz/statistics/econind/a3/data.html
March 17, 2008 at 3:31 pm
Sweet Jesus, Bruv, dodgy practice in Australia?! Who would’ve thunk it! I mean, Australia has such a squeaky clean image when it comes to corruption allegations! Next you’ll be telling us that Australia’s indigenous people get a pretty raw deal from the various Australian governments or Kalgoorlie has rather extensive prostitution. I don’t think I can stand you shattering any more of my shiny illusions about our cousins across the sea.
March 17, 2008 at 3:56 pm
mattb02 - look at the stats inflation figures, they have weighted contributions to inflation from each product group - it’s oil and food making up the bulk of it.
March 17, 2008 at 4:35 pm
icky
Perhaps you can ask dear leader (she IS in the next office after all) if she fancies giving Crudd a bit of advice on how to cover up corruption, apparently it has been that long since the Ockers have had a socialist govt they forgot to get he police on side before they started.
March 17, 2008 at 4:38 pm
I thought the Kiwiblog Right preferred a hard “K” when describing people’s names - presumably to honour their patron’s “K”iwiblog site. Crudd? You’re just not trying any more Bruv.
March 17, 2008 at 5:11 pm
What’s the reference Wat, I’ll look it up.
March 17, 2008 at 5:50 pm
The clique who want to rule our country again are neocons; a New Zealand version of the neocons that have ruled/ruined the Republican Party and the USA for eight years. These people talk down New Zealand while the US economy crashes in neocon chaos, they seriously believe we should follow the Cheney/Bush line, tax cuts and all. New Zealand’s National Party has been infiltrated, just as Labour once was. Labour drove the alien out, so should National
March 17, 2008 at 6:08 pm
Bruv
That has absolutely NO RELEVANCE to this discussion.
You can argue where the inlfation comes from til th cows come home but the point remains - Tories talking down our economy when it is actually pretty strong.
Yes, we should get ready for a hit from the neo-con led collapse but ofwwwohywilde is absolutely right - lwe can avoid following the pricks down the drain.
March 17, 2008 at 6:32 pm
The original NZ “neocon” was of course a Labour party man, the same man who now HAS to come back and repair the stuff ups made by Kullen over the last nine years.
I have asked this question before and have yet to receive an answer but can you tell me what YOU would have done differently had you been faced with the same problems Sir Roger Douglas had to deal with in the early 80’s?.
Douglas saved this country and is the principle reason we have enjoyed the best economic conditions in living memory, we should not be in a position that necessitates the return of Douglas, if Kullen had not miss managed the economy to such an extent we would be on the pig back.
March 17, 2008 at 6:33 pm
robby
Corruption and Labour/Labor are always relevant.
March 17, 2008 at 9:09 pm
The US economy is melting down. The Euro is sitting at $1.57 and the Germans cannot tolerate it going much higher.
Everywhere you look there are blatantly obvious signs that the entire system as we have known it is about to collapse.
My prediction. Out of this crisis we will abandon this obsolete nonsense of all these competing nationalistic instruments and there will be within a decade… a single global currency.
March 17, 2008 at 11:20 pm
and a 5 prayer a day to Allah, just as you lefties want.
March 17, 2008 at 11:40 pm
Well here’s one answer:nothing. I would have done nothing differently..faced with the same problems.. in the early 80s. In cleaning up the mess after Muldoon, Douglas introduced the Family Care Package as one of his first acts, to try to cushion the worst changes of reform on working people. I saw that then as properly liberal for a Labour minister The same couldn’t be said of Thatcher or Regan. I supported Douglas and Lange in those years and happily voted for Prebble. In my view our country changed for the better, socially and economicaly. Douglas was a part of a great reforming Labour government. However, it became obvious that the cost to a great many people was huge. Change shattered peoples lives, mostly those at the bottom, while at the same time Remuera wide-boys ran off with a pile of the country’s dough. So Labour, being so fond of change, changed, and focused on trying to make the reforms that had benefited and modernised our country available to everyone. Yes even those at the bottom, in that way Labour has never changed. I believe Cullen is yet another highly competent Labour Finance Minister, in that he tries to involve everyone in the benefits of the economy, finessing Douglas’ reforms .
As for the present noecons, they are no Roger Douglas. They’re more like a bunch of hoods possessed by greed, cracking it with big-noting editors and talking a lot of dirt, for the benefit of their greasy mates.
March 18, 2008 at 7:59 am
and actually Douglas wasn’t a neocon.
His financial policies mirror some of what the neocons say NOW but he was ahead of that game. And socially he was amillion miles for the current lot in the US or the lot that ran with Thatcher and reagan.
March 18, 2008 at 9:07 am
Umm, reference please Wat?
March 18, 2008 at 3:07 pm
mattb02:
“No. As already pointed out previously here, non-tradable inflation has been persistently the cause of inflation in NZ, averaging 3.8% the last 12 months and 3.9% the last 24 months.”
That analysis is bogus. Many goods and services that have been affected by rising oil prices since 2002 ( i,e, taxis, furniture removals, all other forms of transport and most produce) do not face international competition, and so are not considered “tradables”. i.e. Also - you need to be going back to 2002 (when the price of oil started sky-rocketing) in order to see the full impact of oil price rises on inflation since Labour have been in power.
March 18, 2008 at 4:20 pm
Reference please Wat?
March 18, 2008 at 5:25 pm
Squid.
March 18, 2008 at 10:05 pm
“That analysis is bogus. Many goods and services that have been affected by rising oil prices since 2002 … do not face international competition, and so are not considered “tradables””
Yes. But these are the ’second round’ impacts that the Reserve Bank has to deal with as they fuel inflation expectations - which keep inflation elevated. The Bank can ignore a sudden rise in fuel costs, but it can’t ignore the impact of this on domestic price setting behaviour, or else we end up with inflation.
“the Bank could just take a more real-world approach and stop punishing the New Zealand economy for the world’s inflation problems”
The Bank has to anchor inflation expectations, or we end up with the same level of unemployment and higher inflation. The rise in the price of oil is a negative aggregate supply shock - it is unfortunate, but it means that New Zealand is now poorer - the Bank is simply being realistic about it instead of pretending there is some free lunch available where we can ignore inflation and this cost to unemployment will just go away.
March 18, 2008 at 10:50 pm
Wat, my request for a reference was genuine: I have not seen the sources of inflation broken into its components and since you said you had found a place that does this I thought I’d ask where. I mean I actually presumed you hadn’t made this particular thing up.
But now I’m thinking maybe you did.
March 19, 2008 at 1:41 pm
Mat - don’t disagree with anything you wrote there.
You have however tried to peddle a similar line to Matt on another previous thread, that oil price increases haven’t been affecting inflation. Nice to see that you seem to have given that fantasy up now.