Tuesday, September 27, 2022

Point of Order: The PM has basked in the glow of approving publicity overseas

But the dollar’s dive should bring her back to earth

Prime Minister Jacinda Ardern has won lots of favourable publicity, while attending the Queen’s funeral in London and the UN General Assembly in New York.

It was a sombre mission in London, less so but no less tiring in New York (although the nuclear threat from Russia was sobering).

On both occasions, Ardern has represented the country so outstandingly that New Zealanders for a week or two might have overlooked how poorly the government has been performing at home.

Indeed, one commentator – Matthew Hooton in the NZ Herald – suggested that if NZ became a republic he would back Jacinda Ardern for president.

Nobody, he says, better personifies contemporary New Zealand globally and in national celebration or grief.

Yet seven years of Roboardenomics have taken their toll. After what in retrospect seems like the golden years of the Key-English era, the NZ economy is being blitzed by the combined impact of the Covid pandemic, erratic governance, and raging inflation.

Even Deputy PM Grant Robertson now concedes inflation may last longer than originally thought.

Other symptoms are becoming apparent. The NZ dollar has plunged precipitately, most notably slumping an alarming 19% against the US dollar.

It has also dropped steeply against the Aussie dollar. Whereas just a few months ago it was well above 90Ac, it is now around 88Ac, not much fun for pensioners spending their six-monthly spells on the Gold Coast.

It is no consolation that the British pound has also plunged against the US dollar. At least the British are getting big tax cuts (offset, of course, by the increased government borrowing that has spooked the money markets).

For countries like New Zealand and the UK, the strong US dollar presents bigger problems than just the cost of a trip to New York or Disneyland.

It effectively puts the US at the front of the queue in the fight against inflation. A higher currency offsets the costs of their imports and eases the pressure on local consumers.

The rest of the world will have to work harder to get prices down.

Of course, it is true that NZ exporters receive higher returns through the lower value of the dollar – but the problem is that NZ has been running large deficits through the pandemic because of the absence of foreign tourists and students.

As inflation lingers longer with us than might have been expected just a few weeks ago, interest rates might have to go higher than hoped for.

Economists at ANZ and ASB have lifted their forecast peaks for the Official Cash Rate from 4% to 4.75% and 4.25% respectively.

Market pricing now sees a peak of around 4.5% and the implication is that the Reserve Bank will need to work harder to slow the economy and get on top of inflation. Meanwhile Robertson is going ahead with his plan for what the Opposition dubs a “job-tax” just to pile an extra cost on business (or so they say).

Those Labour backbenchers who (according to opinion polls) are in danger of losing their seats at the general election next year must be wondering what else the government can do to smash their once-flourishing careers.

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

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