Decades ago, politicians decided they couldn’t be trusted with inflation targeting and so they outsourced that responsibility to independent central banks.
But letting go is hard to do and politicians just love to talk about inflation anyway.
Finance Minister Nicola Willis put out a press release on Wednesday saying Consumers Price Index (CPI) data “shows we are turning our economy around and winning the fight against rampant inflation”.
She didn’t say exactly who was included in the royal “we” but perhaps she was referring to the Reserve Bank and households making sacrifices to meet their mortgage repayments?
The press release continues: “Today’s data confirms that our approach in Budget 24 was the right one — prudent government spending, lower taxes for hard-working New Zealanders and laying the foundations for New Zealand’s economic recovery”.
It is hard to see exactly how data from the June quarter could affirm Budget 2024, which only took effect at the end of the three month period. Any impact on inflation will only be visible starting in the next quarter, and it could be positive due to income tax cuts.
There was a mini-budget which cut government spending by $7 billion! But those savings were spread over a five year period, with only $228 million happening by the end of June.
That didn’t stop Act Party leader David Seymour from using it as an example for what the new Government had contributed to the lower inflation numbers.
He told reporters that “massive amounts of borrowed cash” had swelled the economy and led to inflation — failing to mention the pandemic that accompanied the borrowing.
“[The coalition] came into power, put through a mini-budget which cut $7.5 billion straight away, put in place a budget with a spending allowance of just $2.4 billion over the next four years,” he said.
Those things do mark a significant change in fiscal policy between the two governments but they mostly haven’t happened yet. Any impact on today’s inflation must be minimal at best.
Inflation will be dead and buried before the full $7 billion of spending cuts and the budgets with smaller operating allowances are delivered.
Nevertheless, Prime Minister Christopher Luxon thought the data was significant enough that he took a break from his vacation to tweet a line from Willis’ press release. Why not!
Readers, please don’t interpret this as a partisan attack on the current Government.
When the Labour Government decided to join the inflation war, it inexplicably chose to fight on the side of inflation — but you wouldn’t have known it from their press releases.
A statement in June 2023 said Labour was “taking pressure” off inflation with “careful and targeted spending” despite having increased spending by $5 billion one month earlier.
It’s okay that politicians aren’t tackling inflation, the system has been designed to deal with their malarkey, but it might be nice if they didn’t have to pretend to be in the driver's seat.
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