By Roger J Kerr
It has always amazed and surprised me that the largest contributor to low and stable inflation in New Zealand - strong competition in industry sectors - never rates a mention in the quarterly Reserve Bank of New Zealand Monetary Policy Statements.
So what is the state of competition in the New Zealand economy?
A recent research survey by the Electricity Authority found that consumers these days think they benefit from robust competition in both the telecommunications and banking sectors.
It did not use to be that way in these two sectors, thanks to new entrants like 2 degrees in mobile phones and Kiwibank in banking the previous cosy pricing environment by the established players has been broken open.
However, the consumers surveyed did not see the same competition ensuring pricing discipline in the electricity and petrol station markets.
Part of the answer is that the competing retailers in these industries buy from single sources with fixed cost structures.
The lack of real competition on the electricity market has seen consumer electricity prices rise constantly over the last 10 years and thus contributed considerably to CPI inflation increases. Unless we find a cheap source of natural gas close to the major cities very soon, it seems our electricity prices will continues to increase as the up-front cost of renewable generation, like wind turbines, is well above other energy sources.
Economic policy initiatives for more competition in telecommunications and banking sectors have worked to bring down prices, why isn’t the RBNZ petitioning Government harder to get greater competition in the energy industries?
Less reliance on hiking interest rates to contain inflationary pressures and more focus on competition in the economy by the RBNZ would reduce the collateral damage on our export industries when the NZ dollar lurches upwards due to rising interest rates.
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* Roger J Kerr runs Asia Pacific Risk Management. He specialises in fixed interest securities and is a commentator on economics and markets. More commentary and useful information on fixed interest investing can be found at rogeradvice.com
1 Comments
The RBNZ would hardly wish to draw attention to the fact that it has a sole monopoly to dictate short term interest rates. Hardly a regime of market forces operating here.
The most recent GDP stats confirm a nominal 5.67% annual increase in all spending representing growth and inflation. The latter accounted for most of the spending increase if inflation data for the same period is to be believed.
If true competition existed would depositors seek to receive highly negative real after tax returns. I guess not.
The captured RBNZ is undertaking the dirty work of providing a positive yield curve to encourage foreign bidders to partake in the NZDMO's continuous debt raising exercises.
Obviously, the Federal Reserve is taking care to provide a bid to the long end of the curve.
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