“Government can lead the way by building up public transport and rail freight infrastructure.” Why? We’ve aready got the port facilities to get more freight off more highways than any amount of investment in railways could ever achieve. Removing the legal impediments to car pooling would be an easier, cheaper and faster way to save petrol than investing in PT. The main legal impediment is that if you car pool you can’t be reimbursed for part of the petrol cost by your car pool partner(s). You need to have a taxi license to before you enter into this sort of arrangement. It’s different if you pick up a hitchhiker who offers petrol money after the journey has begun.

I discern that he is now perceived as worse than a “grinch” while Helen’s popularity has yet to disappear totally.

Yes – that’s why Bollard talked almost exclusively about food and fuel in his last OCR report.

With GDP growth heading towards zero or below we could be looking at stagflation. As Matt has so eloquently outlined we don’t need to exacerbating the situation. by dropping interest rates. We need Allan Bollard to act decisively and raise rates by 0.25% now instead having to raise by a lot more later.

We shouldn’t be taking economic advice from the ex-member for Tauranga.

Exchange rate high? We have the best terms of trade since 1974 – sounds like a reason for a strong dollar. Yes our nominal interest rates are high and this will work to inflate the dollar as well – however we only have a higher “neutral interest rate” in New Zealand because our neutral interest rate is so much higher (4.5% compared to 2% in NZ).

Why is the neutral interest rate so high at the moment – well capital accumulation has been increasing over recent years and we do import plant and machinery. Furthermore, if households believe they are currently in a “low income” state they will want to borrow to fund consumption. So we are borrowing to invest and borrowing to consume – which implies we need a higher interest rate to dampen interest rate to dampen all our borrowing.

“Let the exchange rate fall and, yep, petrol will be more expensive but that will be more than made up for by increased export returns, which would stimulate the economy.”

Petrol will rise immediately, exports will take 12-18 months to pick up. As a result, I don’t think the immediate impact will be that good for NZ.

High oil prices are an issue – but they aren’t inflation. As well as high oil prices we seem to be struggling with an inflation problem – a problem that will remain as long as we keep our interest rates in easing territory

We have high interest rates relative to the rest of the world and that’s keeping our exchange rate very high. Let the exchange rate fall and, yep, petrol will be more expensive but that will be more than made up for by increased export returns, which would stimulate the economy.

The solution to high oil prices isn’t to keep the exchange rate high or whatever, it’s to use less petrol.

Good point. It’s the law of unintended consequences. Thats why the RBNZ is better off remaining independent, and the Reserve Bank Act needs to ensure that it doesn’t become subject to political fiddling ( as Winston Peters is so keen to do.)

Tane: “And we’re not even remotely near double digit inflation, only a moron or a scaremongerer would suggest that’s the case.”

Cast your mind back to Muldoon & the mid-seventies and remember how quickly inflation rose from single digits to upwards of 20% (less than a year) and how long it took to be tamed (around 15 years). It could certainly happen during the term of a Labour/Progressives/Green/Maori Party government.

As you know Tane the money that our banks use to fund home loans comes from overseas investors. The RBNZ cannot therefore directly influence the interest rate that home loan customers pay. This is determined by the perceived risk that the overseas investors see in investing in New Zealand. Acting in an irresponsible way could therefore do more harm than good.

I might be wrong but I thought that increased oil prices had a knock on effect with increased food and power prices as well.

It seems the choice is either meeting the mortgage payments or keeping your household warm and fed.

And we’re not even remotely near double digit inflation, only a moron or a scaremongerer would suggest that’s the case.

Peter Nelson, your comment doesn’t make sense.

Or does Labour want to see the retired lose all their savings ?