Picture the Waitemata. It’s expansive. The bridge to your left, Rangitoto on the right, CBD behind you and an e-scooter weaving wildly just out of your vision. Ice cream in hand, pistachio and mango, clear sky allowing the winter sun to warm your soul. We really are lucky to live in such a beautiful country.
When the idiot on the e-scooter ploughs into your side, tipping you forward so your face breaks the fall and the ice cream scatters across the creosote, which matters more; the speed that the e-scooter was travelling at the moment of impact or, alternatively, how far it had been ridden in the previous hour?
Let’s talk inflation.
Last week the Department of Statistics reported the Consumer Price Index, CPI, had risen 4.1% in the last twelve months. Petrol has been a bit expensive lately. 4.1% does not sound too bad.
Except it is.
In the last four quarters inflation has run at; 1%, followed by 0.6%, 0.9% and, in the three months to June, 1.5%. This means that in the last 90 days prices rose by 1.5% relative to where they were on the 31st of March 2026. Stats NZ reported the four figures as one movement; what they didn’t mention is that the e-scooter of our economy is speeding up. Because we like to think in annual figures the speed is 6% annually.
That is bad. Let me explain.
We have two measures of inflation; traded and non-traded. Traded is what we import and non-traded is what we sell to ourselves. Mango-ice cream made entirely from locally produced milk and mango is non-traded. The cone, imported from Indonesia, is traded. The non-traded sector only rose 0.6% in the last quarter; while traded ratcheted up 2.7%.
Digging into the details; this was mostly due to some dispute in the Middle East. Diesel jumped 50% and petrol was some way behind but still noticeable at 20%. Domestic travel costs rose by around 15% in a single quarter. Where to from here?
To guide us in this journey we have the Chief Economist of the Reserve Bank; Paul Conway. Here is their problem.
There is a lag between overseas price shocks and rises in the price of locally produced goods and services. Businesses can be fast to raise prices when their underlying costs increase. Inertia is a powerful force.
Except it is.
In the last four quarters inflation has run at; 1%, followed by 0.6%, 0.9% and, in the three months to June, 1.5%. This means that in the last 90 days prices rose by 1.5% relative to where they were on the 31st of March 2026. Stats NZ reported the four figures as one movement; what they didn’t mention is that the e-scooter of our economy is speeding up. Because we like to think in annual figures the speed is 6% annually.
That is bad. Let me explain.
We have two measures of inflation; traded and non-traded. Traded is what we import and non-traded is what we sell to ourselves. Mango-ice cream made entirely from locally produced milk and mango is non-traded. The cone, imported from Indonesia, is traded. The non-traded sector only rose 0.6% in the last quarter; while traded ratcheted up 2.7%.
Digging into the details; this was mostly due to some dispute in the Middle East. Diesel jumped 50% and petrol was some way behind but still noticeable at 20%. Domestic travel costs rose by around 15% in a single quarter. Where to from here?
To guide us in this journey we have the Chief Economist of the Reserve Bank; Paul Conway. Here is their problem.
There is a lag between overseas price shocks and rises in the price of locally produced goods and services. Businesses can be fast to raise prices when their underlying costs increase. Inertia is a powerful force.
Reserve Bank Governor Dr Anna Breman. Photo: BRUCE MACKAY / The Post
However, as business owners and their accountants notice that the cost of delivering the milk and mango flavouring to the factory has risen, they will get around to responding. Ergo; the rise in diesel and petrol has not yet been felt into the non-traded sector.
But it will. The Reserve Bank, responsible for managing inflation, will want to ‘look through’ this effect.
The rise in costs isn’t inflation but a change in relative prices. The cost of getting to work has gone up. Your wages should not rise to compensate. If, in an attempt to maintain your past level of real income you demand and achieve a pay rise, this will force your employer to raise their prices.
If this occurs across the economy the spike in the traded-inflation will spread to the non-traded sector. As Conway explains: “Monetary policy cannot soften the direct hit to real incomes from higher global petrochemical prices – we are collectively worse off with a deterioration in our terms of trade and national purchasing power.”
If this does not happen on its own, and this seems improbable, he goes further. Monetary policy can “…prevent first-round price effects from becoming second-round inflation pressure.”
The Bank can achieve this in two ways. It can force up interest rates in order to damage the economy, driving up unemployment to chill the expectation of workers for a pay rise and terrify firms into accepting reduced income. This works. Or it can short-circuit this process by managing expectations.
The current governor, Swedish economist, Dr Anna Breman, explained in March that a “short-lived disruption and a temporary increase in petrol prices can - and should - be looked through.”
Which is correct but I am not sure she has been effective in communicating this mechanism to the truck drivers, mechanics and printing contractors of these islands.
Regular readers may recall I was, on occasion, critical of her predecessor, Mr Adrian Orr, for his policy decisions; but Adrian was effective at communicating.
The role of the Governor isn’t to sit silently at the head of the Monetary Policy Committee. She has a bully pulpit and the performance of her responsibilities requires her to use it.
It is time she got out from behind her desk and used the power of her position to lower expectations; because the alternative is, well, unpleasant. Especially with an election less than 100 days, and one more CPI announcement, away.....The full article is published HERE
Damien Grant is an Auckland business owner, a member of the Taxpayers’ Union and a regular opinion contributor for Stuff, writing from a libertarian perspective
However, as business owners and their accountants notice that the cost of delivering the milk and mango flavouring to the factory has risen, they will get around to responding. Ergo; the rise in diesel and petrol has not yet been felt into the non-traded sector.
But it will. The Reserve Bank, responsible for managing inflation, will want to ‘look through’ this effect.
The rise in costs isn’t inflation but a change in relative prices. The cost of getting to work has gone up. Your wages should not rise to compensate. If, in an attempt to maintain your past level of real income you demand and achieve a pay rise, this will force your employer to raise their prices.
If this occurs across the economy the spike in the traded-inflation will spread to the non-traded sector. As Conway explains: “Monetary policy cannot soften the direct hit to real incomes from higher global petrochemical prices – we are collectively worse off with a deterioration in our terms of trade and national purchasing power.”
If this does not happen on its own, and this seems improbable, he goes further. Monetary policy can “…prevent first-round price effects from becoming second-round inflation pressure.”
The Bank can achieve this in two ways. It can force up interest rates in order to damage the economy, driving up unemployment to chill the expectation of workers for a pay rise and terrify firms into accepting reduced income. This works. Or it can short-circuit this process by managing expectations.
The current governor, Swedish economist, Dr Anna Breman, explained in March that a “short-lived disruption and a temporary increase in petrol prices can - and should - be looked through.”
Which is correct but I am not sure she has been effective in communicating this mechanism to the truck drivers, mechanics and printing contractors of these islands.
Regular readers may recall I was, on occasion, critical of her predecessor, Mr Adrian Orr, for his policy decisions; but Adrian was effective at communicating.
The role of the Governor isn’t to sit silently at the head of the Monetary Policy Committee. She has a bully pulpit and the performance of her responsibilities requires her to use it.
It is time she got out from behind her desk and used the power of her position to lower expectations; because the alternative is, well, unpleasant. Especially with an election less than 100 days, and one more CPI announcement, away.....The full article is published HERE
Damien Grant is an Auckland business owner, a member of the Taxpayers’ Union and a regular opinion contributor for Stuff, writing from a libertarian perspective
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