Thursday, June 16, 2022

Point of Order: Latest food price figures reinforce the economic-performance criticisms Opposition can fling at the Govt

“America’s next downturn may have a mild flavour—but a bitter aftertaste”. So ran a headline in The Economist.

Juxtapose that to New Zealand, and we could be served a double dose of the bitter aftertaste.

The problem here is that the authorities apparently didn’t see it coming and now, as it arrives, they could be slow out of the blocks in dealing with it.

Prime Minister Jacinda Ardern kept denying there was a cost-of-living “crisis”.

After its impact nevertheless could be seen to be hitting home, the Finance Minister tacked on to the budget some measures he hoped would assuage any pain being felt by New Zealanders — although the queues at foodbanks were already lengthening.

The latest food price index shows a 0.7% increase in food prices for the month of May. Food now costs 8.9% more than at the time of the last election and fruit and veges cost 16% more.

That has given Opposition parties a free hit at the expense of the governing party.

National’s Nicola Willis said:

“These rapidly rising prices are part of the wider inflation tsunami hitting our economy, with hard-working Kiwis left swamped in its wake, as their wages rise slower than prices. While Labour likes to put this all down to pricing decisions made by supermarkets, the truth is New Zealand’s inflation problem is far more widespread.

“Restaurant prices are rising at their highest rate since 2009, with ready-to eat food prices rising 6 percent in the year to date, as inflation gets a grip beyond supermarket shelves.

“Grant Robertson has no plan to tackle inflation. The Government has instead poured more fuel on the fire with more government spending, pushing up interest rates and worsening the cost of living crisis”.

ACT’s David Seymour contends the PM and Finance Minister are focussed on the PR spin around cost of living and blaming global events like the war in Ukraine.

“Meanwhile everyday New Zealanders who are struggling to make ends meet are getting forgotten. They deserve straight talk and common-sense solutions rather than disingenuous spin designed to distract from the mess they’ve created”.

Seymour notes that New Zealand is a food superpower.

“New Zealand farmers grow enough food for eight times our population. We shouldn’t be in a position where we’re paying through the teeth to put food on the table, and it’s not the farmers and growers making any money.

Some might argue it is the Reserve Bank’s task to curb inflation, but it too has been slow into battle. And the enemy is already taking its toll.

Investors in the local sharemarket saw $4bn carved off the value of their stock.

Labour MPs might not be too concerned at that— but wait till their constituents see what it has done to their KiwiSavings.

Finally, as the Reserve Bank starts firing up its artillery, rising interest rates are hitting mortgage-holders in a way they might never have felt before — and it isn’t any fun for them.

As one journalist noted:

“Arguably, interest rates should have been raised to pre-pandemic levels a lot earlier, which would have cut off the need for steeper rate hikes now.The official cash rate reached its pre-pandemic level of 1% only nearly two years after the country went into lockdown, and well after rising inflation took hold”.

Now the risk is that if the Reserve Bank hoists the official cash rate too fast and too high, it will push the economy into a deeper recession, with all that might mean in terms of rising unemployment, falling house prices, and, dare we say it, greater poverty?

It’s not the kind of scenario any government wants in a looming election year.

Point of Order is a blog focused on politics and the economy run by veteran newspaper reporters Bob Edlin and Ian Templeton

1 comment:

Robert Arthur said...

I can forgive the government for many health policy misjudgements related to Covid. They were in new territory with no time to ponder. But their monetary practices another matter. Causes and effects are basic textbook stuff. It was pointless to offer cheap loans when so many business were at risk. The last thing they needed was more debt to reduce any company residual value. Money has been ladled to the media and to maori to procure both. Millions as reward for the latter's taiho attitude to vaccination. Millions to marae. No other political group or social, hobby, gourmand, action dance, marshall arts, hobby language, or rebel training clubs have received similar.
With everything indexed to everything else inflation is going to prove incredibly difficult to control. Instead of all taking it on the chin thus moderating inflation from the outset, a downturn will have to be engineered, but only after all prices and wage costs have risen compoundedly. A continued mania for property ownership is ensured. As last time the plight of those most cruelly affected, savers, is ignored. Ethics are no longer a consideration.Their loss is seen as fair punishment for not having spent up. They do not lose just a few percent of weekly spending power, but a huge chunk of all monies dutifully saved (and taxed) often for decades.