- Date published:
8:24 am, April 21st, 2023 - 36 comments
Categories: Economy, national, nicola willis - Tags:
Yesterday Statistics New Zealand dealt a rather large blow to National’s election chances when it announced that the latest rate of inflation was 6.7%, a significant drop below the previous rate.
You could hear the fear in Nicola Willis’s voice on Radio New Zealand this morning. Instead of touring the country pretending to be concerned about poor people they may have to complain about something else.
The result is much lower than the predictions from most economists who were predicting inflation to be stable or increase. You have to wonder about their predictive skills or the methods that they use.
And food inflation was the biggest contributor to the increase which is not surprising given the storms that battered the country recently.
The next result will be keenly watched by the parties. If it lowers again it will blow an even bigger hole in National’s election prospects.
Not sure the headline number matters. When the basics, food, housing and utility costs are what most people really notice the news is far from good.
Vegetable prices increased 22 percent in the 12 months to March 2023, while ready-to-eat food and milk, cheese and eggs increased 9.7 percent and 15 percent, respectively
While the headlines and news coverage includes figures like an increase of $150 per week in the weekly household spend by next year – just to keep up with inflation – I don’t think that the ordinary Kiwi is going to be much influenced.
“Debt servicing, food prices and transport costs are all set to contribute to households’ pain.
Meanwhile, the recent floods and Cyclone Gabrielle are expected to keep inflation – already at 30-year highs – elevated, the report noted.
ASB senior economist Mark Smith said household spending is likely to struggle in 2023 as household budgets get clobbered by rising costs.”
[NZ Herald premium link]
The fact that inflation is not increasing quite as quickly, isn't something that really resonates with most people.
Micky has his Comical Ali hat on this morning
It takes a certain level of something eird, to think inflation at these levels is bad for the opposition.
Labour strategists will be wanting to talk about anything but inflation and the cost of living in the next 6 months. This is not a good news story for them.
When your whole political policy programme is based on supposed failures by the government, and making vague, uncosted promises to do better, which is not backed by history, any improvement in the inflation figures is a looming catastrophe for the Natz and Act.
Well done, Chippie and Grant.
It would be so easy to appreciate the National Party MPs if they were at the East Coast with shovels, hammers and nails helping to actually rebuild this country.
National just don't know the meaning of work.
Isn't that when you watch your property portfolio increase in value year after year – and you don't even have to pay tax on the huge returns. Tax is only for the poor!
If National were a p[arty serious about governing & looking like a government in waitin, they'd be doing things like offering to make sure this legislation was passed before the house rises in August, whilst vowing to be even ttougher on crime.
Do you mean they should behave like the various Cabinet Ministers who turned up in Wairoa and promised to fix things after the cyclone?
Then, when the TV cameras were put away and work was required to install the bridge to re-open the road to Napier they vanished and nothing much seems to have happened. The Bailey bridge, which was supposed to be finished by the end of this month has just been put back till at least the end of next month.
Meanwhile Hipkins shoots off to Brisbane for the weekend. I wonder if he used Air Force 1?
Would you like a list of the stuff that Labour has done as a result of Cyclone Gabrielle?
The most morally vacuous thing one can do after a disaster is complain that there's more to be done.
There's only one party doing the work. You know who it is.
"stuff that Labour has done".
What do you mean when you say this? Are you counting things that the Labour MPs have done personally or do you mean things that Government employees have done? If it is the latter then I would assume that you would accept the claim that the National Party provided more than $100 billion of health care between 2009 and 2017 and Labour provided nothing. Zero, Zilch, nothing.
If you mean something they did personally I would love to see the list.
Wow. Just WOW.
I wonder what log you have been sleeping under, alwyn?
Bloody hell! I would hope inflation would be dropping after the rapid rises in interest rates lately.
But, the thing is, most of the drop is due to lower import costs rather than inflation dropping in the internal economy. From the article:
So then, so far as bread and butter issues are concerned, inflation is still incredibly high.
"I would hope inflation would be dropping after the rapid rises in interest rates lately"
You should really disabuse yourself of this idea that central banks get to influence what their countries inflation rates are.
"Inflation drops sharply in Australia but it is not the work of the RBA"
It works at least from a psychological perspective.
That is, if people believe prices will fall tomorrow (say due to RB intervention) they will likely hold off purchasing today because it might be cheaper tomorrow. Hence, demand drops, and prices in accordance with that.
The reverse is true in an inflationary environment. If people think it will be more expensive tomorrow, they tend to buy today to get the best price.
So you could be right about inflation moving independently of RB action. It is more about consumer beliefs, and they may have other reasons, unrelated to RB actions that cause them to hold those expectations.
What your claiming to happen clearly needs to show up in the data. Should people 'hold off purchasing today' then the consumption (and likely investment) components of GDP will fall. Basically on an empirical level such a simple model just doesn't have a good record of prediction.
On the other hand, since I know way too much about this stuff, this doesn't work theoretically either. Consider the work of Piero Sraffa who derived a new class of models of the economy based on classes of products. See here under Production of Commodities by means of Commodities.
One of the main fall outs was that there is no single appropriate interest rate for the central bank to target which could determine the inflation rate. Every interest rate choice represents a trade off favoring some kind of production over another.
A similar conclusion was drawn by more main stream economists later as well,
Essentially this says that if you have a bunch of agents who all obey the law of demand (they uniformly prefer to pay less for the same products), then their aggregate demand curve can still however be any shape at all.
Both these results are true mathematically and just say that certain (widely proffered) economic ideas couldn't possibly be good descriptions of macro economic behavior.
I actually don't disagree with you too much.
Interest rates are a very blunt and imprecise tool for the job, and likely to have as many unintended consequences as any benefits.
Inflation from overseas tends to be what it is, so not much to do about that. The only benefit of raising interest rates in that respect is the dollar is likely to increase, thus making imports cheaper. Though, it doesn't seem to have happened this time.
And, there are other non-interest rate factors that could be adjusted. For instance, immigration settings, and their effect on wages.
The problem (always) with debate about inflation is first to agree upon the definition.
Tell me you didn’t read beyond the headline without telling me you didn’t ready beyond the headline- Mickey you go first.
As others before me pointed out, the drop is in the imported. Domestic inflation remains and as Treasury pointed out earlier this week- Govt is partially at fault for this.
Can you point me to stats NZ's separate domestic and imported inflation series? Thanks.
Bottom section on this page.
Not quite. Stats NZ are unable to split them for the following reason,
"Non-tradeable inflation measures final goods and services that do not face foreign competition and is an indicator of domestic demand and supply conditions. However, the inputs of these goods and services can be influenced by foreign competition."
As you will observe tradeable and non-tradeable measures move in similar ways and that's because they are not actually independent of one another.
…observe tradeable and non-tradeable measures move in similar ways and that's because they are not actually independent of one another.
This is simply untrue.
There has been a common sharp uptick in both tradeable and non-tradeable inflation rates over the last two years, but the longer term trends in T/NT inflation could not be more starkly different.
From 1999 to 2020, NT inflation was very stable – the annual rate only once in that whole period moving outside a pretty narrow band between 1.5% and 5% annual inflation. From 2011 to 2020, it never left the 1.5% to 3.5% range.
On the other hand, T inflation is much more volatile – ranging from +6.3% in 2008 to -2.4 in both 2004 and 2015. Over the same 2011 to 2020 period I mentioned with NT, T inflation fell (almost 7% in total) then flattened out.
While I recognise (and as SNZ acknowledge), there are inevitably going to be common international economic pressures and drivers in T/NT inflation causes, the relative impact of those commonalities, and the transmission mechanisms that feed into how final consumer prices change, are very very different.
"There has been a common sharp uptick in both tradeable and non-tradeable inflation rates over the last two years"
This is what I described. In statistics, two variables are not independent when they share some common component in common. They are only really independent when they share no common components.
As Nic said the split between the two is not a clean one.
Besides as I mentioned food inflation was the biggest contributor to the increase which is not surprising given the storms that battered the country recently.
It doesn't matter where it comes from or what it all actually means, the bald information is the latest rate of inflation is 6.7%.
I assume that's according to the normal way of reporting things. People will make of it what they will.
I know it's bad news for those who want the country to do poorly. I know it's bad news for those who want it to be said that New Zealand is the worst country in the world and the worst performing country in the world. I knew I'd see people saying "the data is wrong."
It must be interesting going through life wanting the worst to befall one's own country. I am certain there are many who are still in a post-covid despondency and gloom that there wasn't real carnage so they could say the Government (and Ms Ardern in particular) were wrong and that they knew better. The Hosking "You don't know what you're doing, you've got it all wrong, we know what you should be doing" mob.
Yes, you’re partially correct.
Interesting how the lines on that graph all follow such similar tracks. It seems that the NZ government wastefully spending too much on consultants has had a truly global effect! Thanks for pointing that out Nicola.
Food inflation will continue to be a major problem whilst Labour pussyfoots around the Commerce Commission's recommendations on supermarkets.
A national chain of government-owned small-medium sized basic foodmarkets (something along the line of the old Write Price model) would be a good start.
But it ain't gonna happen, I suspect.
Nationwide chains of supermarkets, service stations and Kiwibank with a Government guarantee and regulated prices for telecoms and electricity
Unfortunately the NZ media will not give the true situation. Time, then, to look at reputable overseas reporting…..
You better tell Adrian Orr this because he's hellbent on engineering a recession and throwing tens of thousands of kiwis on dole.
Im not sure the people whose fortnightly mortgage payments have gone up and are drowning thanks to Orr are going to take much notice in a quarterly inflation update that has inflation slightly lower than expected.
I'm not sure kiwis whose cost of living prices for food and housing are crippling them are going to care that inflation went up by slightly less than predicted, unless they can eat the quarterly update.
And considering only about 90 thousand people watch the news these days, I don't think most kiwis have seen the update unless it was broadcast on married at first sight.
The people I've seen claiming that this quarterly update matters are the same people who were saying there was no cost of living crisis, so I don't think they are seeing the ground level state of the economy right now.
New Zealanders are going to vote on how they feel and the mood of the country is pessimism, anger and bleakness. People think the country is falling apart, the healthcare system is third world, education is crumbling, groceries are skyrocketing, rents and mortgages are unbelievable and the vibe is that the govt is up to f all but social engineering and bureaucratic restructuring.
When the mood of a nation is this bleak in an election year it's always a "throw the bums out" election.
I hope national doesn't win because Acts economic policies scare me but a Labour/Green/Maori coalition scares me just as much on social policy.
Whoever wins, kiwis are screwed.
That is a theme I hear increasingly…and the politicoes appear either blissfully unaware or terrified and silent.
It does not bode well.
Construction costs will decline with the new gib board factory.
Petrol costs will go up with the tax back on in June.
Food costs will not keep increasing as they have. We may have reached peak disparity of domestic price to export price (to reduce local sales so as to develop and sustain foreign markets) and domestic events (weather and eggs industry) were extreme.
The RBG can use a higher OCR to reduce imported inflation (out compete Oz with a higher OCR) safe in the knowledge that the rising cost of mortgages is not counted in the CPI index.
Labour shortages resulting in less efficient and more costly distribution will ease at some point.