By Rick Jones*
Buried deep within the Reserve Bank of New Zealand’s current consultation document, Supporting New Zealand’s economic stability Toitu te Ohanga, are two paragraphs that deserve more prominent billing.
The consultation is part of the RBNZ’s five-yearly review of the remit that guides the Monetary Policy Committee’s Official Cash Rate decisions.
The RBNZ says the remit “sets out the operating guidelines from the Government for achieving monetary policy’s legislated goals of maintaining price stability and supporting maximum sustainable employment.”
Working through the paper to page 59, the reader comes to a section labelled “Enhancements to the CPI [Consumers Price Index].” This section highlights an issue which CPA Australia has been raising, that inflation data in New Zealand is published on a quarterly basis. In all other OECD economies, CPI data is produced monthly.
“This is an area in which New Zealand fails to comply with the International Monetary Fund’s Special Data Dissemination Standards,” the RBNZ says.
It goes on to note that monthly CPI data would support effective monetary policy decision-making, help policymakers in assessing inflation and improve the ability to compare New Zealand’s inflation data internationally. In short, monthly data is important to help get our monetary policy settings right.
This is not a new concern. In fact, the RBNZ notes it raised this view in a submission to the 2013 CPI Advisory Committee. But it is an increasingly important issue given the current high rate of inflation in New Zealand and globally and the pressure on central banks to rein in rising prices.
Following calls from groups like CPA Australia, the Australian Bureau of Statistics announced in August that it would start monthly CPI reporting. CPA Australia has been calling for New Zealand to follow suit.
In Australia, it’s not only the central bank that has found access to more frequent data useful. It has raised the public awareness of inflation and its sources. It has been helpful for businesses planning their operations and households readying themselves for the future.
We need more urgency to reach monthly CPI in New Zealand.
A growing number of economic observers and commentators are voicing concerns the RBNZ could overshoot in its current monetary policy tightening cycle. This may result in keeping the Official Cash Rate higher than it needs to be or even continuing to raise it after inflationary pressures have abated. Interest rates are a blunt tool and the economic effects of getting the settings wrong can have far-reaching implications.
The Financial Times wrote on December 7 that the success or failure of the RBNZ’s “ultra-hawkish” strategy will not become clear for some time. As a result, it risks overcorrection.
“The RBNZ is ‘driving while looking in the rear-vision mirror’ and risks missing the turn,” ANZ Senior Economist Catherine Birch told the Financial Times.
Under the heading “The RBNZ is hell-bent on hiking rates to hurt households and induce a recession,” Kiwibank’s economists on 28 November wrote; “we’re wary the RBNZ may overtighten and cause a sharper correction, or a deeper recession, with a greater pullback in house prices.”
If the danger is overtightening, getting reads on the CPI monthly, rather than every three months, could help the RBNZ avoid missing the turn.
The RBNZ has wanted monthly CPI data for almost a decade. It’s a high impact request without a high price tag.
Statistics New Zealand, which produces the CPI, told Stuff on October 28 that it “doesn’t have the funding or resources to provide monthly inflation figures”.
So, what would it cost to deliver a monthly CPI measure?
About $450,000 upfront, and another $600,000 to $1.3 million annually, according to Stats NZ's estimate in 2013. That’s about the cost of a median priced house in Auckland. But the real cost might be even cheaper in today’s world.
When the Australian Bureau of Statistics announced it would provide a monthly CPI indicator, it flagged that cost had previously been a prohibitive factor. But new data sources, such as scanner information and web-scraping, have made it possible to provide high-frequency data at lower cost.
It's possible these improved data gathering methods would be available here too. Stats NZ has completed a 10-year strategic overhaul focused on improving efficiency and productivity. Even if the cost today remains at up to $1.3 million a year, we would get a lot for the money.
A monthly CPI would identify a turn in the tide of inflation far faster than quarterly reporting. This would allow the RBNZ to start easing the tightening cycle before more economic pain is inflicted than inflation control can justify. Households and businesses would not have to handle higher rates than they may otherwise face.
In today’s high inflation environment with rapidly rising rates, this is critical information. Surely, that’s worth one Auckland house a year?
*Rick Jones is New Zealand Country Head of CPA Australia, one of the world’s largest professional accounting bodies. He featured in an episode of interest.co.nz's Of Interest podcast earlier this year.
36 Comments
Not doing something looks cheaper and easier than doing it, until you remember why it needed to be done in the first place.
Our tax rates haven't moved in a decade, I think something that could provide more regular scrutiny of the government's role in managing the economy is going to be well below that on the priority list.
Monthly CPI data is absolutely indicated, especially now. I take issue with some of the comments that house price drops are why we need it. House price rises didn't attract similar sentiments - it's all about protecting one way traffic down a two way street and it stinks.
No point in doing now - the RBNZ got behind the curve and reacted too slowly as inflation leapt up, now they can jolly well get the downside call wrong too. Besides breaking the housing market will have huge benefits - finally destroying Kiwi's obsession with housing via a colossal deflation in house prices is a worthwhile goal (even allowing for collateral damage). The RBNZ would never have chosen to be the one to wield the axe to the housing market (quite the reverse) but inflation has now forced their hand so let it play out (and as a nation we will get to see the positives). Lets hope for a 40% fall at a minimum.
Not at all, giving people making decisions that eventually effects us all better or more timely information on whih to make those decisions is just good sense, where as Whiner Kings post is nothing but sour grapes, and ignoring that a large overshoot on tightening policy will cost people their jobs, and that doesn't just affect over leveraged landlords, its affects blue collar and white collar workers too.
It's funny how the problem is always just one way!
A monthly CPI would identify a turn in the tide of inflation far faster than quarterly reporting. This would allow the RBNZ to start easing (OR TIGHTENING) the tightening cycle before more economic pain is inflicted than inflation control can justify. Households and businesses would not have to handle higher (OR LOWER) rates than they may otherwise face.
Property investors would try have you believe that they should be lumped under the same category as St John Ambulances, in dire need of tax subsidies and rebates to make the numbers stack up.
Meanwhile, average owner occupiers derive an income from being able to sleep in their own homes, yet are expected to be grown ups and manage their finances out of their own pockets without going cap in hand to the Government.
Rick Jones argues it's simply too important for New Zealand to NOT have monthly CPI inflation data
100% and same with GDP and other data. This embarrassing delay is the reason why the RBNZ overshoots its response (in both directions) to what is actually happening in the NZ economy.
Very well put Rick, a much needed article!
I work in the IT space. Changes coming in late (now!) which should have been decided a year ago. Not sure though if it's a few squeaky wheels or like I have heard from 2 different sources, actually threatening of delivery of the census. I reckon they have enough time to sort it out though.
People reading this need to get in fast if they want to get a new ICE. The Euro 7 regs are kicking in and are going to kill the car I ordered a couple of months ago. This is your last chance to get in and order something exciting to drive before the reg and governments kill your dream car.
what's the holdup?
the whole world doesn't revolve around inflation rates & interest rates
stats have to count many other things too...increasing the frequency increases the cost. are health stats less important than economic...? who prioritises it
what's the sudden need to change?
it didn't matter in the past but now its a big issue
the elephant in the room no one measures
an economy screwed towards housing and speculation...tops ups & drawdowns...pieces of paper for security
I wonder how much business this schmuck will lose in a housing rout
The actual problem with how inflation is measured is the exclusive focus on consumer goods.
This was fantastic when we were outsourcing and offshoring manufacturing, since you got the same goods for lower prices. But it doesn't even including housing prices, asset price inflation or anything which HAS inflated since the QE experiment started in 2008/2009.
There should absolutely be a separate inflation metric tracking the inflation of asset prices (which is to say, the spot price of the rights to ownership of some property), whether it is housing, stocks etc. The whole 'Everything Bubble' has caused a huge amount of inflation, but not in anything that is measured using the established consumer goods price measurements of inflation.
It is as bad, if not worse, than when inflation metrics used in the early 70s ignored food and energy prices, as those prices were spiking.
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