Here's our summary of key economic events overnight that affect New Zealand with news inflation pressures are confirmed today, setting the stage for more rate hikes.
American consumer price inflation reached 7% in December, a 40 year high but in line with what was expected. Food prices rose +6.3% and energy prices +29% in the year. The rest were up 5.5% for which clothing was up +5.8% and rents up +4.1%. Medical costs which are very high to start with were only up +2.5%. There is plenty of evidence here that cost increases are broad for households and probably not going away any time soon. But because there were no surprises in this data, markets are tending to consider it 'priced in'.
But for all that, it more or less confirms the US Federal Reserve will start raising its policy rate 'soon', probably in March. It can't let inflation get embedded at these levels.
Update: The US monthly budget statement for December showed a sharp improvement in the monthly budget deficit, down to just -US$21 bln in the month - which is almost in balance for them. (It was a -US$144 bln deficit in December 2020.) Much more responsible management of their budget is one factor, along with better tax flows from an improving economy.
Today's well supported US Treasury 10yr bond tender has brought sharply higher yields, up to 1.65% from 1.45% at the prior equivalent event a month ago.
China's consumer inflation rate fell to 1.5% in December, lower than for November, but still the second highest rate since mid 2020. Food prices fell, but that did not include prices for beef, lamb or milk.
China's producer price inflation eased to 10.3% in the year to December from 12.9% in November and below market forecasts of 11.1%.
China's vehicle sales slipped in December from November, but rose for the whole year, consolidating it as the world's largest vehicle market. They sold just under 2.8 mln units in December, the eighth consecutive month of decline, as a global shortage of semiconductors continued to hurt the sector. Sales of new energy vehicles (NEV), including battery-powered electric vehicles, plug-in petrol-electric hybrids, and hydrogen fuel-cell vehicles, jumped +114% to 531,000 units in the month or 19% of all December sales. For full year 2021, car sales grew for the first time since 2017, up +3.8% to 26.3 million.
China new bank lending data for December confirms their current economic stall, with the expansion less than expected and less than in November. And that is despite their money supply being boosted more than expected.
India also release its December CPI data which was up +5.6%, more than the 4.9% in November but not as bad as the 5.8% anticipated. But it was the highest rate since July. India's central bank has a target to keep inflation in a wide 2%-6% range, so they aren't panicking.
However, India's industrial production growth slipped badly in November, rising only +1.4% when double that was expected and coming off a +4% rise the prior month. This probably got policymakers' attention.
EU industrial production recovered in November from an unexpectedly weak October, but that still left it -1.5% lower than year-ago levels.
The slow grinding recovery in international air travel is still very weak, with it still down -80% in November from the November 2019 levels. Europe and North America are down about half, but Asia/Pacific is still down -90%. This market is dormant, struggling to hold on (and only doing so with the aid of Governments, and recovering domestic traffic.
In NSW, there were 34,759 new community cases reported yesterday, and a rise from the day before, now with 333,235 active locally-acquired cases (and undoubtedly an undercount), and 21 more deaths. NSW hospitals face critical staff shortages, and they have been told the number of COVID-positive people needing inpatient care could exceed 4500 within the month. They are now up to 2,242. Half of all NSW ICU patients are unvaccinated. 21,693 pandemic cases in Victoria were reported yesterday, also higher than the day before. There are now 209,715 active cases in that state - and there were also 21 deaths. Queensland is reporting 22,069 new cases (higher too) and one new death. In South Australia, new cases have risen to 3715 yesterday with 7 more deaths. The ACT has 1078 new cases and Tasmania 1583 new cases. Overall in Australia, 102,567 new cases were reported yesterday. The WHO is saying it is way too early to treat Omicron like the flu, principally because the data doesn't support that yet, and that future mutations are still very likely.
The UST 10yr yield opens today at 1.72% and with another -4 bps retreat. The UST 2-10 rate curve starts today notably flatter again at +82 bps. Their 1-5 curve is slightly flatter at +105 bps, while their 3m-10 year curve is flatter at +168 bps. The Australian Govt ten year benchmark rate is down -5 bps at 1.82%. The China Govt ten year bond is softish at 2.81%. The New Zealand Govt ten year is down -5 bps at 2.50%.
Wall Street has opened today firmer with the S&P500 up +0.3% in afternoon trade. Overnight, European markets all gained about 0.7%. Yesterday, Tokyo gained a shar +1.9%, Hong Kong an even sharper +2.8% while Shanghai rose +0.8%. The ASX200 ended up +0.7% but the NZX50 ended down -0.2%.
The price of gold started today at US$1825/oz and another +US$10 rise since this time yesterday.
And oil prices start today marginally softer at just under US$80.50/bbl in the US, while the international Brent price is now just over US$84.50/bbl.
The Kiwi dollar opens today markedly firmer at 68.4 USc and a +¾c rise. Against the Australian dollar we are unchanged at 94.1 AUc. Against the euro we are firm at 59.9 euro cents. That means our TWI-5 starts the today up at 72.6.
The bitcoin price has firmed further since this time yesterday, up another +2.0% to US$43,603. The softer US dollar helped. Volatility over the past 24 hours has been moderate at +/- 2.0%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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118 Comments
The US is coming to a crossroad, everyone can see that they are letting inflation run and now expect some action, but can they afford to pull the plug on the money printing and raise rates?
https://wolfstreet.com/2022/01/02/interest-rates-mortgage-rates-prices-…
It might not be but I think whatever weighting stats give to it, it underestimates the role of housing in peoples costs.
Take a young couple saving for a deposit. They are paying rent and saving probably more again for their deposit. From their perspective its the total that is spent on housing and it crowds out other expenditure. From stats perspective they just count the rent.
Bang on. I just went back and checked my old records, and when I was saving for a house I was 'spending' 70% of my take-home pay on housing costs (if you count rent + saving for a deposit). If you take into account Kiwisaver contributions (which were also in effect housing costs, as they would eventually be used towards a deposit), I was spending 55% of my gross pay on housing.
Now I have a mortgage, I spend 60% of my take home pay on housing (although that includes paying quite a bit more than the minimum on my mortgage, rates, insurance, and a small amount set aside for maintenance/repairs). That amount works out to about 42% of my gross pay.
I think what happened late last year is that Biden told Powell that he could have another term as Fed boss if he tackled inflation (because Biden is worried about poor voters abandoning the Dems at the midterm elections late this year).
If I'm right, it explains the sudden turnaround in Fed's plans. I bet he is hoping that inflation abates and he can make a case to prop up the markets again, but in the aftermath life will have become more expensive for the average Jo. The next chapter in the slow slide from the affluence of the 50s and 60s.
Ioannidis’ latest Infection Fatality Ratio (IFR) numbers by age. Young people more likely to die on the drive to school.
Median IFR
0.0013% 0-19
0.0088% 20-29
0.021% 30-39
0.042% 40-49
0.14% 50-59
0.65% 60-69 years
https://www.medrxiv.org/content/10.1101/2021.07.08.21260210v2.full
“The COVID-19 death risk in people <65 years old during the period of fatalities from the epidemic was equivalent to the death risk from driving between 9 miles per day (Germany)”
https://www.medrxiv.org/content/10.1101/2020.04.05.20054361v1.full.pdf
I agree. Maybe it had some merit with Delta as it could stop transmission, but with Omicron it doesn't even do that (and Delta is so last year).
We are currently debating whether our kids should get the vaccine. The only real reason we would do it is because otherwise they may get excluded from school, swimming, sport, etc, which is a pretty crappy reason.
That’s only in play in Australia because they have wide spread. When you have 100,000s of people with COVID, then you get a lot of people with a broken ankle who also have COVID. When you have a couple of thousand people with COVID-19, it is much more likely a person with COVID-19 is in hospital because they have COVID.
7% of how many have be hospitalised. How many are hospitalised because of COVID find out the facts before suggesting kid get vax which does not work because some kids will have problems and reactions from jab and nobody knows how this will effect people in years to come.
7% out of about 2200 but it’s a percentage so you know it factors in the denominator.
Anyway, you ask how many kids have long term effects from the vaccine - well how many kids have long term effects from COVID-19?
Long COVID is a well documented phenomenon, whereas I have seen no evidence of long term impacts from the vaccine.
So you are saying 2200 0-9 year old have had COVID in nz so 154 have been hospitalised because of COVID is this over last two years.if this is true it would be with delta which is more harmful so around 1.5 kids a week hospitalised because of COVID no deaths of COVID . Seem a bit crazy to vaccinate kids with these facts as I said this vaccine has only been approved for emergency use we don’t know effects for a few years. Why don’t you get a grip you seem very worried.
i have just looked on government website and you have got your figures incorrect total of 45, 0-9 year olds hospitalised zero in icu
There is another provability people also need to calculate here: The chance of your/the child actually catching covid in the next 6 months. We are currently at about 30 cases a day decreasing with about 1 in 5 - 6 being children.
By winter omicron will have changed every single probability anyway.
People <65 years old have very small risks of COVID-19 death even in the hotbeds of the pandemic and deaths for people <65 years without underlying predisposing conditions are remarkably uncommon
One in four people in NZ have 'underlying predisposing conditions' - and they are actual real people.
The current vax doesn't work with Omicron and as I predicted they are already working on a specific vax for it. The result will be multiple jabs and boosters and this is even before the next variant arrives. The whole thing is unsustainable so at some point they will just have to let it rip.
It does work with Omicron - it is very effective at preventing severe illness from Omicron, but without a booster it isn’t very effective at preventing you catching COVID-19. These are two separate points.
Once you have the booster it is effective at preventing severe disease and it is effective at preventing you catching COVID-19.
That just isn't true. Countries that are largely unvaxxed are having a wave of Ominicron but very few deaths. I was in Zambia in August so that is one country I'm familiar with. No lockdowns, no quarantine, few vaccines. one of the lowest rates of death from covid in the world.
First of all nobody disputes less deaths from Omicron but the vaccine which is free and safe reduces those deaths by a factor of 10. This is not insignificant. According to this site VIC and NSW lost 42 people, reducing by a factor of 10 saves 36 lives. And then there is the avoided hospitalizations. It can be both true that Omicron is less of a problem and mitigation steps are still needed.
Nonsense from start to finish. The vaccine is not free, debt is being issued to pay for it and it will need to be paid back.
If you think any covid statistic is reliable you are a fool, this site is no exception. The only statistic that will be reliable over the long run is overall mortality, simply because the fact of a death is pretty hard to fudge.
I'd say you had better what out, what I am seeing at a local level is increased exposure to adverse vaccine events. People are getting angry, and at some point there will be a backlash. You might like to deny the vaccine is killing and maiming people, but that is irrelevant to the perception that it is. Pushback is underway.
Believe Pfizer (CEO Bourla) are now saying with booster up to 75% effective at stopping serious going on hospitalisation. But, and obviously even before omicron arrived, the uniqueness of any individual with underlying conditions, made it impossible to predict how much protection afforded to them case by case. That fact you raise though about omicron vs Pfizer, will be sufficient for the government to keep NZ in isolation, borders closed for 2022 at least.
You’ve made an error there.
You don’t need a booster for it to be effective at stopping severity. I think two doses is already around 75% for that. The booster raises it over 90% I believe.
the big difference from the booster is to prevent catching it. For that the booster takes it from a very low figure to around 60-70% effectiveness.
Here is one quote - granted it’s derived from early SA experience.
Pfizer Inc. and BioNTech’s Covid-19 vaccine, as well as the shot developed by Johnson & Johnson, appear to largely prevent severe disease from the omicron variant, South African studies show.
The two-shot Pfizer course may offer 70% protection against being hospitalized with the variant that is driving the country’s fourth wave of infections, Discovery Health Ltd., the country’s largest medical-insurance provider that covers 3.7 million clients, said on Tuesday.
‘
A preprint study conducted by Oxford University reported that two doses of the AstraZeneca or Pfizer-BioNTech vaccines offered little protection against infection with the Omicron variant.
However, a real-life study from South Africa found that two doses of the Pfizer-BioNTech vaccine still protected people from severe disease.
Researchers found that two doses provided 70 percent protection against hospitalization and 33 percent protection against infection. This was a drop from about 93 percent and 80 percent, respectively, for the Delta variant.
A study published in the New England Journal of Medicine echoed these figures, finding that a two-dose regimen of the Pfizer-BioNTech vaccine was 70 percent effective against hospitalization with Omicron.’
Just because A is dangerous doesn’t mean you should ignore the dangers associated with B. Especially if you can mitigate the dangers of B via a free and safe vaccine.
In terms of your statistic - 210,000 people <65 have died in the US from COVID-19. Which is about 0.08% of the population. Or 8/10,000.
Now you are claiming that driving 9 miles has the same risk as dying from COVID-19 for this group?
If what you are saying is true, every time I drive 9 miles I have an 8/10,000 chance of dying? Do you want to retract that assertion?
I'm not sure you're thinking rationally here - earlier you quoted an IFR of 0.14% for 50-59 year olds. Extremely basic arithmetic will reach the conclusion that this is far more dangerous than driving 9 miles.
~500,000 50-59 year olds in NZ, ~300-400 total road deaths per year. Even the obviously incorrect worst case assumption that all those deaths are in the 50-59 year age group gives a ~0.07% fatality rate, not even accounting for the average person driving much further than 9 miles per year.
From your stats 700 people in this age group would die if exposed to Covid. You are correct that driving is dangerous in NZ - you are just missing the fact that Covid is even more dangerous.
“The COVID-19 death risk in people <65 years old during the period of fatalities from the epidemic was equivalent to the death risk from driving between 9 miles per day (Germany)”
https://www.medrxiv.org/content/10.1101/2020.04.05.20054361v1.full.pdf
The paper holds up very well, and this was obvious to anyone who looked at the Diamond Princess data early on or the more recent IFR data per above link.
Conclusion "People <65 years old have very small risks of COVID-19 death even in the hotbeds of the pandemic and deaths for people <65 years without underlying predisposing conditions are remarkably uncommon."
Being charitable, you must have misspoken in your earlier comment. "Virtually all <65 should be more scared of driving > 9 miles than Covid" - I think you actually mean on a population basis - as per my post, this certainly isn't the case for 50-65 year olds. They don't care about how low risk the disease is for children in doing their own risk calculation.
Secondly, you missed the 'per day' from the previous post. We are comparing ~365 x 9 mile journeys against 1 incident of catching Covid here - not the 9 mile drive I might do today.
Gold Jimbo. John P Ioannidis is a powerhouse. According to the Atlantic "may be one of the most influential scientists alive”. The great ability to put complex concepts into perspective.
And this is from the Jimbo who was telling me the other day your preference to be treated in hospital by a covid positive nurse rather a healthy nurse who has chosen to not have mRNA therapy...
Ok let’s do the maths properly with regard to what I actually said.
There are about 4.2M NZers under 65.
I said that 210,000 people in the same age group died in the US. That’s 8/10,000.
Now that happened over almost 2 years so let’s be fair to you and halve it to 4/10,000 because we are talking annual road toll.
So 4.2M / 10,000 * 4 = 1680
So the COVID-19 deaths for that age group are 1680 versus 300-400 for the road toll (that’s under 65, would be much higher for 50-59 but moving on). So COViD-19 deaths are 4x.
But your argument is even worse than that. You said driving 9 miles. The NZ road toll is based on people driving thousands of miles each year. So if you assume each person drives 4000 miles each year and you are talking about 9 miles, well you need to divide the NZ road toll by about 400 for a ‘per 9 mile figure’ which equals roughly 1.
So now we have 1680 deaths for COVID-19 versus 1 death for everyone driving 9 miles in a year.
So COVID-19 is 1680x as dangerous as driving 9 miles.
But it’s still worse than that those deaths are mitigated by vaccines. Remove the vaccine and it’s even higher.
The average mortality rate in traffic in New Zealand is 7.1 per 100 000 (0.0071%) vs 0.0013% for covid 0-19 - so 5x more deadly for the 0-19 age group than covid on average. And goes up to 6.6x for 18-19 year olds, level pegs with covid for 20-29 year olds.
Not till you hit 30 and start getting more comorbidities does traffic fatality become more likely than death with covid – using the NZ numbers and Ioannidis IFR by age.
And you can’t avoid the of covid vs with covid. Fauci highlights this the other day in regard to children but it stands for all age groups. A car fatality is much easier to diagnose than a covid fatality.
"The other important thing is that if you look at the children are hospitalized many of them are hospitalized with COVID as opposed to because of COVID," Fauci added.
"What we mean by that is that if a child goes in the hospital they automatically get tested for COVID and they get counted as a COVID hospitalized individual, when in fact they may go in for a broken leg or appendicitis or something like that.
"So it's over counting the number of children who are 'hospitalized' with COVID as opposed to because of COVID."
US data on lifetime odd of dying in a car crash order of magnitude higher than the lifetime odds of dying of covid.
- The odds of dying from a motor-vehicle crash in 2019 were 1 in 8,393.
- The lifetime odds of dying in a motor-vehicle crash for a person born in 2019 were 1 in 107
https://injuryfacts.nsc.org/all-injuries/preventable-death-overview/odd…
Yep, plenty of debates to be had. Ironically, if everyone got vaccinated then this really is just like a bad flu season and would be treated as such (unless more deadly variants show up). It's a shame that most of those saying it's 'just a cold' or 'just like the flu' don't take the basic preventative steps to make it so.
I already take an annual flu booster as I work with vulnerable patients - I expect Covid-19 will either be bundled in with it eventually or offered in a similar fashion.
Perhaps but probably not if latest series of news articles are to be believed. Approved academics such as Baker & Davis for instance, omicron must not be allowed to enter the community. And this morning lock downs, business closures location by location are highly possible which has caused Baker to urge the government to abandon the traffic light system. Looks to me the groundwork is being prepared & rolled out for the government to announce the retention of isolation & border closure indefinitely.
I don't think the government are paying too much attention to those nutters these days, they are consistently wrong. And I think the Netherlands is proof that lockdowns don't actually work with Omicron anyway. Although I see pfizer are saying they will have an Omicron vaccine by March, maybe the government would wait until then (but unlikely that they could anyway).
I wouldn’t label Baker a nutter.
But I do agree there isn’t any evidence lockdowns work for omicron. They weren’t enough for Delta so logically with Omicron much harder to contain they won’t be effective.
However, our health system may require a lockdown or two even if they barely impact the number of cases.
The most critical element is obviously hospitalisation rates, not mortality. I see NSW's hospitalisation rate has skyrocketed.
If the virus is only 75% as deadly but many times more contagious at the end of the day we'll still be overwhelming our healthcare system.
Anti-vaxxers are a problem as they are more likely to require hospitalisation. That makes it harder for the country as a whole to open up and carry on as normal under Omicron while we have an angry minority putting the healthcare system at risk.
JJ my post was mostly re NZ’s closed border, recent media articles identifying Auckland & other EDs presently over- worked doesn’t augur well for even a modest influx of covid admissions. the government’s policy has always been to close everything down a la Auckland, at the slightest whiff of potential for that. Looking at NSW/Victoria, our government will not entertain any such possibility and therefore their foremost weapon against the greater threat now of omicron, is to maintain the present status at the border.
I generally agree about everyone being vaccinated and moving on.
But there are some points to note:
• A really bad flu is really bad, so you still have to be careful.
• Omicron spreads a lot more effectively, an R value of 3+ versus 1.3 for the Flu - this means it will hit a population/health system harder hence the absenteeism you see overseas with 20%+ unavailable
• Our health system is underresourced so it needs protection even in an average flu scenario.
I am optimistic Omicron is the beginning of the end. We need to get as many people boosted as possible, get the 5-11s vaxxed, then we just need to pump the break occasionally to slow the spread. But hopefully most of the population would have had it and got over it by May. I don’t think there is any strategy where you protect people from Omicron.
Hardly , nail on the head there . except getting kids vaxxed , have a think about that one.
NZ should be embracing O this summer , we are all going to get it.
if you are dbl vax its just a mild cold , maybe less , begining of the end
lets open this great country back .
I took up surfing at the age of 50. Last week I was out in 10' waves on the West Coast, so big currents and well as big waves.
I think I know a bit more about risk management than you. I most definitely know about my own risk management better than anyone else. Stop talking for others, you just make yourself look like a dick.
I am not giving you, or anyone, the right to do that. Guess what, it is my right to do that. Also guess what, the "Civil" in civilisation actually requires individual liberty. Lost that liberty and you've lost your society. What you are trying to enforce is the positive step taken towards it's destruction.
Consequentialism has no place in science, it is in fact anti science. Consequentialism is summed up nicely in the term "for the greater good". What ever you are thinking it isn't rational, and it won't lead to good outcomes either.
There are credible studies emerging now that vaccinated people are contributing to community transmission more than unvaccinated people.
This isn't because the vaccine doesn't work - it does - but rather due to "complicating factors". Vaccinated people are more likely, or indeed able, to go out and engage in risky behaviour believing that they're immune. They're wrong. If Omicron takes hold in the community, it will be due to vaccinated people gathering and spreading it.
Stay home and get tested, we are still in the middle of a pandemic. Being vaccinated isn't an excuse for putting others at risk.
You just need to look at case numbers in NZ to see this is rubbish, the vaccine has almost eliminated Delta.
But if you are only talking about Omicron even pfizer admit the vaccine does not stop transmission (although it is still pretty good at reducing hospitalisation and deaths)
Surely the closed border policy - for everyone but your DJ mates - is the over riding factor not vaccination per se.
"The US Centres for Disease Control and Prevention (CDC) identifies four of the top five counties with the highest percentage of fully vaccinated population (99.9–84.3%) as “high” transmission counties. Many decision makers assume that the vaccinated can be excluded as a source of transmission. It appears to be grossly negligent to ignore the vaccinated population as a possible and relevant source of transmission when deciding about public health control measures."
https://www.thelancet.com/journals/lanepe/article/PIIS2666-7762(21)0025…
Australians are now taking action to attempt to speed up nationwide immunity by holding ‘COVID parties” - just like the old kids chicken pox parties of old.
https://7news.com.au/lifestyle/health-wellbeing/epidemiologist-addresse…
Today's well supported US Treasury 10yr bond tender has brought sharply higher yields, up to 1.65% from 1.45% at the prior equivalent event a month ago.
Some money facts:
Sentiment v. Substance: Checking In On Collateral Via, Yes, The Fed
I only came on to find the Snider links :-) Interesting as always. It is going to be an interesting year. I thought it might get really interesting last year mind you but we muddled through it somehow. Used to be 30 logging trucks a day going past the front gate. There was still the odd one before Xmas but now it is stopped dead.
Everyone I know that has been double vaxxed has no intention of getting a booster. They have had bad reactions and also feel they've been lied to about getting vaxxed and the lockdowns end. They will leave their job rather than get a booster.
I thought Powell was excruciating yesterday. He is basically pitching for an extension of his job by saying that the Fed can bring down inflation. How? By cranking up interest rates to reduce aggregate demand in the economy. The impact of this is well known - money transfers from borrowers to savers, unemployment increases - preventing wages rising in line with costs, housing costs increase, Govt give more free money to owners of financial assets (interest in bonds), and people end up miserable with less money to spend on things that have got more expensive.
Increasing the rate will do nothing to tackle the root causes of inflation, which are:
- productive capacity are insufficient to meet the demand for goods
- supply chains are stuffed up - and companies are trying to stockpile goods and build inventory (stuffing supply chains up further)
- companies with market power are extracting increased profits
- Russia and the Saudis are fixing the price of gas and oil, and, at the same time, the US Gulf Coast oil infrastructure is nearly out of reserves due to a battering from hurricances (high oil prices have a broad inflationary impact)
My cynical view is that this is an attempt by the right (and neoliberal economists) to persuade the media and the public that runaway inflation is the inevitable consequence of Biden spending a bit of money on poor people (e.g. child benefits), wider fiscal stimulus, and 'unsustainably low' unemployment levels.
Obviously we have Simon Bridges running an op shop version of this narrative here too.
Explain how they 'chucked $10 trillion into the markets' and the transmission route to inflation?? I think you probably mean that the Fed swapped trillions of dollars of liquid securities for (slightly more liquid) cash, which was then spent on other financial instruments and assets - boosting their value? None of this made the Saudis increase the price of oil, caused a global pandemic, made hurricanes blow harder, or shut factories in Taiwan.
So... fund managers splash cash bidding up the price of financial instruments and assets (corporate shares, govt securities etc) - and the people who are now wealthier on paper as a result (pension funds, Govt, people in top few per cent of wealth) all rush out and bid up the price of food, petrol, and second hand cars?!? Nope. The people who benefit from higher financial asset values have a very low propensity to spend.
Maybe they have a low propensity to spend. But it doesn't change the fact that the money is there. Comes down to assets, when there is a purchase, there is a sale. That's when the price is determined. Money goes to the seller. So what they do with the money if they have low propensity to spend? Keep it in the bank? You and me both know that would be a terrible way to handle the money at the moment. Reinvest? Then the money pass down to another seller. So are you sure the next person wouldn't spend it? Most people always want new stuffs, whether it's a new luxury car, or a new house or a latest technology news phone (check the sales of new cars last year in New Zealand and you'll know what I am talking about). To keep the money with the assets, you would have to convince people there is always growth of the value. Otherwise people would sell. But most of people are not stupid, they know there are only so much growth within the sustainable level.
It is not complicated... Inflation is literally defined as a broad and sustained increase in the price level of basically everything. For the average low-paid worker it therefore makes zero difference - cost of living goes up 5%, income goes up 5%, who cares, life goes on. If you are wealthy and your wealth is 'earning' a 10% return, inflation at 5% eats away at that return and the value of your asset / stock. Wealthy people hate inflation - especially those that have spotted that with tighter monetary policy, and the end of QE, the value of financial assets will stagnate or fall.
I called my first cat 'Joe'. It's a fine name, but not mine! When I retire in a couple of years, and don't have to sell my soul to earn enough money to live well and get my young people through univeristy in NZ, I will introduce myself!
"Productive capacity are insufficient to meet the demand for goods"
This is exactly why increasing the rate can tackle inflation. When there is inflation, you could have cost-push inflation and also you could have demand-pull inflation. There is not too much can be done from cost-push inflation other than increasing productivity. But before supply to catchup with demand, one way to deal with inflation is to tackle the demand side inflation, which is increasing the cost of borrowing and reduce excessive money supply while waiting for supply to catchup with demand.
It is fair to say that there are demand and supply side solutions. My argument is that cooling the whole economy down and putting people out of work to tackle a lack of productive capacity in factories in Taiwan, China or Mexico is dumb. Making everyone suffer because demand for a product in the CPI basket is higher than supply. It would be better to let the market do what it is supposed to do - increase productive capacity to respond to increased demand.
I think the key point is where the whole economy is at right now. Of course we don't want to cool it down if it's not too hot. The intention is never about putting people out of work. Also tackling demand-pulling inflation by increasing interest rate does not necessarily put people out of work if it's done right. It's sharply hiking interest rate causes that problem. That's why central banks need to do it now. With inflation of 7%, it clearly shows the economy is over-heated. It's not sustainable to keep it running like that.
Also the central banks never let the market do what is supposed to do in the first place. To put it another way, the market is never a free market with no interference. When pandemic happened, I saw this coming when central banks injected ridiculous amount money to stimulate the economy.
Cv19 cases up 29m in last 3 weeks from 18m to 47m
Meanwhile critical and serious cases up from 89,000 to 95,000
Omicron peaked at 229k per day in Uk a week ago.
Now it is 129k media not mentioning it, instead ref to deaths to ramp up fear.
Hospitalisation in UK peaked at 2200 per day (4200 last Jan)
Deaths currently 400 per day cf 1250 at peak last Jan
Any good news, media not interested unless its a furry dog video or some funnies from USA
This does not get any mention on MSM of course.
Meanwhile 7% inflation in USA and 0.5% interest rate
UK inflation 5% and interest rate 0.25%
NZ inflation 5% and rates at 0.75%
Mental.
https://www.newshub.co.nz/home/new-zealand/2022/01/covid-19-new-zealand…
NZ with their fetish of eliminating virus will be shut of from rest of the world for years to come, where rest of the world conti yes to understand and live with virus.
Here also most experts go to extreme to remain highlight/ relevant
Faux Leadership: NZ is currently run by a bunch of snowflakes. Situation: It is not snowflake season so the snowflakes are on holiday. Thank God for that. Bad News Warning: Snowflake season will return to a television set near you in the next month. [A Comparison: Snowflake season is almost as long as the bloody rugby season]. Consumer Suggestion: Trash & burn all your televisions. Do not listen to the media. Take up badminton. Or scrabble. Better for your mental & family health.
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