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Inflation, growth, hard times

Written By: - Date published: 8:50 am, July 19th, 2011 - 30 comments
Categories: class war, cost of living, economy - Tags: ,

Back in October 2010 the Nats were quick to claim credit for (apparently) low inflation:

Govt claims credit for six-year inflation low

The Government is claiming credit for low price rises, saying people have more money in their pockets on the back on low inflation and increasing wages.

Data from Statistics New Zealand (SNZ) released today showed the annual inflation rate is the lowest it has been since March 2004 – at 1.5 per cent.

No doubt they will be just as quick now to accept the blame:

Inflation at 21-year high

Inflation accelerated more than expected from April to June with higher prices for fuel, food and power. …

The consumer price index rose 1% in the three months ended June 30, pushing the annual rate to a 21-year high 5.3%, according to Statistics New Zealand. …

The trimmed mean measures for quarterly inflation ranged from 0.8% to 0.9%, suggesting underlying inflation is accelerating.

The current inflation is still in part a legacy of the Nats’ GST increase. That, combined with the perverse nature of GDP as a measure of economic health, mean that even though the economy is in theory growing again, real people are still facing hard times:

Wow, how is everybody enjoying the economic boom?

Gross Domestic Product in the March quarter was up 0.8 per cent – that annualises to 3.2 per cent growth, quake and all. …

What’s that you say? Redundancies, pay freezes, rising food costs? Well obviously if you make a living anywhere near the retail sector things are still pretty tough. Oh and public servants – well with the Government needing to cut spending to pay off debt times won’t be great for you. But exporters are going great guns.

Okay, yes if your primary market is the US or you trade in US currency then the high dollar will be hurting and you’ll need to be keep budgets tight. … Manufacturers are booming that’s for sure, 3.6 per cent for the growth in the March quarter. Nearly 15 per cent growth if you annualise that one – wow! Oh, really … so that only lifts manufacturing output back to levels we had in 2005 – that global financial crisis really pummelled the sector didn’t it. …

The gaping disconnect between Thursday’s figures and what the economy actually feels like out there is so wide that it has some people questioning the validity of the statistics. …

Money is flowing in to the economy, but that money is not yet flowing through to the pockets of the average New Zealander. … Voters are unlikely to be feeling as buoyant as these statistics.

On paper the economy may have started digging itself out of the hole (not because of Nat policies, but in spite of them). But the experience of most ordinary Kiwis is still of hard times. High unemployment, stagnant wages, and now climbing inflation. But hey – John Key is pretty popular, so what does any of that matter, right?

30 comments on “Inflation, growth, hard times ”

  1. higherstandard 1

    Is Liam Dann, Corrin’s brother ?

  2. queenstfarmer 2

    A fairly verbose way of saying “it’s politics”.

    You give another example in your last paragraph: “On paper the economy may have started digging itself out of the hole (not because of Nat policies, but in spite of them)“. So if the economy improves, you won’t credit the Govt, but if it declines…

    • r0b 2.1

      If the government does things to help the economy (funding for R&D, help for exporters, productive investment, lifting wages, employing people, leading by example with a plan etc) then they deserve (some) credit.  

      If they seem to be doing more harm than good (cutting R&D, cutting investment, cutting jobs, holding wages down, no plan and do nothing budgets etc) then they deserve plenty of blame.

      Pretty simple really.

      • Colonial Viper 2.1.1

        My feeling is that we need a Govt to do and lead things that the NZ private sector has typically been hesitant to do. So as well as providing an R&D tax credit, providing a major boost to strategic CRIs and uni research programmes leading to additional direct employment. In other words tax the private sector to get the resources to invest in things that the private sector is not interested in.

        And not being afraid to ‘pick winners’ too (in sensible risk managed ways of course), because at the end of the day someone has to pick who and what they will back. And “the market” doesn’t have a better hit rate for that compared to anyone else.

        • Chess Player 2.1.1.1

          Well, my feeling is that we need to get off our arses and do stuff to help ourselves and our neighbours directly rather than continuing with the rather pathetic, and ultimately destructive, expectation that somehow the gummint will fix it for us.

          If your first weapon is to tax and redistribute what someone using their initiative has earnt, often providing employment for less able or courageous people in the process, then you will never improve anything.

  3. Colonial Viper 3

    Rapid growth in prices (even excluding the GST increase), coming off a period of low inflation, while unemployment and wages remain extremely weak, with the dollar extremely strong (which suppresses fuel prices and the prices of imported goods).

    That’s a screwy combo.

    One explanation could be that Bill and John are manipulating cash into the economy and doing it badly, leaving it in the hands of a few who are then using it to invest and raise margins in such a way that retail prices are being pushed up.

    Hmmm.

    • Bored 3.1

      VP, what is really going on is pretty much unprecedented since the beginning of the modern economy with the use of technology that replaced human energy with fossil energy. Up until very recently we worldwide have been able to use abundant resources, in particular oil in order to design an economic paradigm built around constant growth in consumption.

      The other constant in this scenario has been the business cycle that tends toward boom bust based upon expansion of credit and debt extended against future consumption (i.e use today pay tomorrow). Thats the basis of the subprime financial bubble that burst a couple of years ago: the ugly day we now face is a result of reflating the banks with further credit based upon the assumption of future growth enabling payment of newly created debt. That growth has proven illusory, and the current PIIGS and US financial danger is that there is no “real” money from growth to pay the debts.Our economies are deflating in terms of production and consumption.

      The unprecedented overlay on the above is price inflation caused by resource decline against an increasing or steady demand for crucial raw materials: primarily oil. With Brent Crude at $119 US and having been there for months anything (which in our economy is pretty much everything) linked with oil was going to go up 20%…inflating price in a deflating economy. Oil price may fluctuate wildly in future but the overall trend is up logarithmically.

      None of the monkeys running National, ACT, Labour and the Greens seems to understand that the BAU model of economics is broken and cannot be fixed. National with their tendency to seize resources etc into private hands has a strategy that works for the few in the short term, its all about trying to guarantee future rental positions. Not very constructive but its all you expect from creative venality.

      Then theres the MSM….totally clueless.Wearing nappies and wet behind the ears.

      • Draco T Bastard 3.1.1

        With Brent Crude at $119 US and having been there for months…

        It dropped quite a bit with the news of the oil reserves being opened up but it’s back up to that price. Should see a jump in a few days when the reserves spigot being turned off again though.

        Oil price has been trending up for the last five years at least.

        None of the monkeys running National, ACT, Labour and the Greens seems to understand that the BAU model of economics is broken and cannot be fixed.

        This seems to be true of all political parties. None of them have a plan to address power down and resource depletion. NAct are especially bad with resource depletion – they want to dig up even more of the scarce resources we have and sell them leaving us with nothing.

        • Colonial Viper 3.1.1.1

          It dropped quite a bit with the news of the oil reserves being opened up but it’s back up to that price.

          This was a totally ineffectual move and tells me how desperate TPTB are to try and get energy prices down. Big consumers like China bought up big during the price drop (thanks capitalists said the Red Team!), and so did the speculators.

          The speculators will be selling the same reserves that Japan dumped on to the market back to Japan with a 30% mark up within the next few months.

          Its high farce. All the suits and ties have no idea what to do.

          Ladies and gentlemen BAU is over, and its not climate change in 50-100 years which is going to bring it about. Its the fact that the scores of energy slaves which help us get through every modern day today are going away. In the next 5-10 years.

          • Bored 3.1.1.1.1

            I have been trying to minimise my energy slaves CV, it is not that easy but they can be cut down on. Really good for the pocket as well. Walking pre dawn over Wellington was a visible something going west very soon (same as every other city on Earth)….street lighting, a complete waste of power.

            • Carol 3.1.1.1.1.1

              Many women feel that lighting at night in public spaces, including streets, is a safety issue, and don’t see it as “a complete waste”.

              But I think there are a lot of things we can do without. I’ve recently taken to cycling, but just wish there were more cycleways away from roads with a lot of motor traffic. I see bikes as a thing of the future, but have been taken aback a bit from having my bike vandalised while it was locked up in a busy public space in daylight…. that may be a thing of the future too.

              • Colonial Viper

                Street lighting is fine; 73% of NZs electricity is renewable and getting it up to 80% is quite practical. With a wee bit of focus on both generation and conservation.

                The real painful issue lies with transport fuels and oil derived materials.

                Personally I think the obesity epidemic will be in serious decline within 10 years.

        • Bored 3.1.1.2

          Nice link Draco.There is a good article on why the banks are failing at Automaticearth.

  4. Lanthanide 4

    I had wondered why the government weren’t trumpeting the March growth figures all over the place. Or maybe they did and I missed it.

    I suspect they knew about the high inflation figures being announced right afterward, and so didn’t want to face questions about why they accepted the growth but not the inflation (when everyone said it would happen as a result of the GST rise). See also the stories about high food prices in the last couple of months.

    I also can’t help but think that some of the large growth in the March quarter is directly from inflation – prices of things are simply higher, so the GDP gain looks bigger.

    • Zorr 4.1

      Nope. Have heard Blinglish several times on NatRad claiming the increased growth figures are excellent for the economy and it is all thanks to the Nats.

    • Peter 4.2

      So was the 1.8% growth Real Growth or Nominal (including price hikes) Growth?

  5. jackal 5

    Most people I know hate John Key. Don’t believe that hype.

    • Ianupnorth 5.1

      I’m with you, unfortunately there are too many trolls around this site (like HS, SS, etc) who seem to think he is doing just fine – sad but true.

      • Except that I don’t think or say that. It’s easy to find things that justify criticism.
        But it’s all relative.

        I will say that Key and National are doing better than I can see any of the current alternatives doing in the foreseeable future.

        • McFlock 5.1.1.1

          lol – praising with faint damnation, methinks 🙂

          Classic trolling – deny being part of the problem, but prevaricate and equivocate whenever anyone else offers a solution.

          • Secret Squirrel 5.1.1.1.1

            The old troll dig in absence of any argument.

            If you look outside bubbles like this, especially across the centre and left, I think that sums up how a lot of people see the current situation, various degrees of mixed feelings about National but no other option that looks half capable.

            • Chess Player 5.1.1.1.1.1

              Good call. In the absence of what this country really needs but would never happen in real life because too many people have vested interests, like an Act/Genuine Greens coalition, we’ll have to make do with National and partners for now. The rest are so far down at the basic survival level they have nothing coherent to offer at the current time.

            • McFlock 5.1.1.1.1.2

              “If you look outside bubbles like this, especially across the centre and left, I think that sums up how a lot of people see the current situation, various degrees of mixed feelings about National but no other option that looks half capable.”
              I disagree – I think the main explanation for the current polling situation is a mixture of self-fulfilling, self-selecting telephone polling and active bias on behalf of some media outlets (and straw opponents like yourself, of course) who actively work to confuse facts and preserve Bland Key. I for one will be very interested to see how things go under the spotlight of an election campaign.

              • It’s not just polling, it’s what many people are saying. If you care to notice what is going on beyond the party cheer squad.

                Blaming the polls is as much a copout from reality as blaming the “troll”.

                • Colonial Viper

                  But…you are both the “party cheer squad” and “the troll”

                  (Indeed how on earth would you know what “many people are saying” i.e. apart from having talkback on all day)

                • McFlock

                  We have two measure of this – polls and people we meet face to face.

                  At the moment I’m seeing a disconnect between folk like inlaws, who definitely voted national last time (and it was probably a habit) but are looking like going labour this time, and the polls.

                  And in case you haven’t noticed, polling and the media tend to determine an outcome almost as much as they reflect the current situation. Quite a bit of research has been done in this area. So Garner kissing Keyster adds a certain level of waiver in the population, but whether this eventually gets reflected in the one poll that counts is another matter – after all, “Pravda” became a standing joke in the USSR.

  6. Afewknowthetruth 6

    GDP measures the conversion of nature and finite resources into waste: that’s hardly something to celebrate when we are running out of finite resources and killing the planet we live on with waste.

    The collapse of fiat currencies continues: gold has recently broken through $1600 ($250 not so long ago).

    The Kiwi dollar has risen from around 76 cents US to around 84 so far this year -around 12%. Without that mitigating factor inflation would be much higher. It sure looks like a ‘last man standing’ scenario which is developing.

    Even as we start to slide down the oil depletion curve, witness ever greater environmental collapse and crumbling of the financial system. people still think the present global arrangements have a future. It’s utterly surreal.

  7. mik e 7

    Its easy to get an economy to grow on the back of a recession but to sustain growth no national govt has managed to put more than a few quarters of growth together over the last 30 years[ I include Roger Douglas in this statement because he was Chicago school of trickle down economics as well ]with same trickle down economics policy same result just better spin doctors in charge.Chicago school Victoria school economics policy really ends up with fewer people at the top with more money less for those on the bottom ie 1920s.Public works spending and tax cuts for the rich ended rather badly Stephen Joyces choices.Murdoch is there chief cheer leader Joyce, Key, Brash, Kerr, are the colonial branch reps that push this style of poor economic policy for their own benefit . while the rest get the left overs

  8. deservingpoor 8

    I’m waiting to see how Nact manage to blame the current inflation figures on the labour government.

  9. burt 9

    rOb

    You are starting to sound like me. Remember how many times I bagged labour for claiming that their policies created the golden years and that the recession wasn’t their fault. I call BS on that much the same as you are calling BS on National now.

    I hope you don’t forget how to be objective next time Labour are in office, it’s really refreshing to see you mocking this typical teflon behaviour of govt rather than defending it.

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