Perspective with Andrew Dickens: "This cost of living crisis is not going away anytime soon"

So, this cost of living crisis is not going away anytime soon, despite what any number of New Zealand political parties promise they can do about it.

The inflation figures are out. It's gone up by one percentage point and there's now a four in front of it. A large part of that cost is petrol, which we can do nothing about. Diesel is up 7.1%.

But even excluding tradable inflation, which we can't influence, non-tradable inflation is still above the Reserve Bank's arbitrary target band. It came in at 2.9%. That's up from 2.4% a year ago.

There's stuff in there that really gets our goat, like the 12% rise in electricity prices. Rates are up 8.8%. That's the non-tradable stuff. We can influence that but we're not. It's all going up.

But all this increases the pressure on the Reserve Bank to raise interest rates to squash these price rises.

The problem I have with that is that the nascent recovery we're starting to see gets squashed as well, forcing us into a longer period of downturn and stagnation.

And that's because this simplistic inflation target does not take into account all the complex wheels that spin in an economy. It's this brutal, simplistic measure that served us so well when it was first introduced 30 years ago but is now seeing us boom and bust, lurching up and down on a rollercoaster that, you have to say, is no good for long-term economic planning.

There is a strong argument for a new way of calculating our economic position rather than relying on a single inflation figure. But it's going to take a very smart person to figure that out.

So until then, the fairground ride that is our macroeconomic setting will continue.

See omnystudio.com/listener for privacy information.

Episode Transcript

Speaker 1 (00:00):
So this cost of living crisis is not going away
anytime soon, despite what any number of New Zealand political
parties promise they can do about it. The inflation figures
are out. It's gone up by one percent. There's now
a four in it. Large part of that cost is petrol,
which we can do nothing about. Diesel. Diesel's up seventy
one percent, but excluding the tradable inflation that we can't influence,

(00:25):
non tradable inflammation is still above the Reserve Bank's arbitrary
target band. It came in at two point nine percent.
That's up three point four percent in a year two
point nine. There's stuff in there which really gets our goat,
like the twelve percent rise in electricity prices. Rates are
up at eight point eight percent. That's the that's the
non tradable stuff. We can influence that, but we're not.

(00:47):
It's all going up. But all are saying that this
increases the pressure on the Reserve Bank to increase interest
rates to squash these price rises. Now, the problem I
have with that is the nascent recovery that we're starting
to see gets squashed as well as the price is
forcing us into a longer period of dime turn and stagnation.
And that's because this simplistic inflation target does not take

(01:09):
into account all the complex wheels that spin in an economy.
It's this brutal, simplistic measure that in fact served us
so well when it was first introduced thirty years ago,
which is now seeing us boom and bust and rock
up and down on a roller coaster, which you have
to say is no good for long term economic planning.
There is a strong argument for a new way of

(01:31):
calculating our position rather than an inflation percentage figure, but
it's going to take a very smart person to figure
all that out. So until then, the fairy ground ride
that is our macroeconomic setting will continue. For more from
hither Duplessy Allen Drive. Listen live to news talks it'd
be from four pm weekdays, or follow the podcast on iHeartRadio.