Nicola Willis: Finance Minister on annual inflation hitting 4.1% driven by a surge in fuel prices and rise in electricity bills

The Finance Minister expects to see power prices start easing "soon". 

Inflation's hit a two-year high of 4.1%. 

It's been driven not only by the surge in global petrol and diesel prices thanks to the war in Iran, but also the 12% annual rise in household electricity bills. 

Nicola Willis told Mike Hosking the increase in power generation is pushing down commercial power prices and should also start bringing down household power prices. 

She says the extra generation is consented and is being built, and the Government expects the fall in energy costs to be passed on to retail customers. 

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Episode Transcript

Speaker 1 (00:00):
So the inflation headline didn't tell the real story. The
headline was inflation, is it a two year high? The
real story is it's nowhere near as bad as we thought.
Four point one could be as bad as it got
take petrol out. We're actually fine. Nikola Willis Finance ministers
with us morning.

Speaker 2 (00:15):
Good morning mate.

Speaker 1 (00:16):
You blame Trump, and you're quite right to blame Trump.
But your other problem of rates and power One is
that correct?

Speaker 3 (00:23):
Two? What are you going to do about them?

Speaker 2 (00:25):
Well, well, that's right, stat scends. You'd say this is
largely a fuel story, and the absence of the international
oil price spike, inflation would be within the target band.
But we do have a challenge on our hands with rates,
which have been contributing to inflation for some time. That
is why our government is acting. We are going to
legislate to cap rate increases because we don't want that

(00:47):
pressure continuing on New Zealand households and on inflation. When
it comes to electricity, that is also a challenge. The
figures for this quarter reflect the transmission pricing that has
increased as we electrified the country. The key thing for
getting power prices down sustainably in the medium term is
more electricity generation, and under our government we are getting

(01:10):
on with that. We have consented double the amount of
new renewable energy than the last government achieved over its
two terms in office. So we are attacking that problem.

Speaker 1 (01:21):
Problem is I'm paying for it, and I wonder whether
I should because if you look at the generation, costs
are coming down and substantially, and some of those commercial
players are starting to wreck that reward. I'm not because
all the cost plus accountants at the retail side of
the equation is stinging me.

Speaker 2 (01:35):
Well, you are right that wholesale prices are starting to
come down as a consequence of the government's policy settings.
What we then want to see is those wholesale price
reductions being passed on to customers. Some positive signs there.
Meridian have said that they are intending to reduce prices
for their commercial customers, and what we expect to see
is that as that generation actually comes on at the

(01:57):
moment it's consented it's being built, that that price reduction
will be priced on to retail customers. You have to
ask yourself what is the alternative, and our viewers a
government has been actually, what we need to do is
build at pace have those solar farms getting up, have
those wind farms getting up. That's why we're fast tracking

(02:18):
those projects at pace. We need more generation in New
Zealand so that energy is affordable.

Speaker 1 (02:23):
So as much as that makes sense for bright people listening,
they'll fully understand that. But you're in an election campaign.
Can you sell that to the electric and they understand
it because also before you get to the vote, there's
two more cash rate rises probably coming as well.

Speaker 2 (02:35):
Yes I can, because here's the gaping gap on the
other side, which is I've heard Chris Hipkins and Barbara
Edman say, oh, look, inflation's bad. Well, what would they
have done differently? In fact, all they have said they
would do differently is they would have spent more, got
out the spending berzooker and sprayed it all around. Well,
we've had a recent experiment with that. They did that

(02:57):
last time they were in office, and inflation much higher
for much longer. Let's go back three years and look
at what was happening with inflation then. Food price inflation,
which is now at two point eight percent, was at
twelve point three percent. What we saw then was that
domestic inflation, non tradable inflation was extremely high. It's now

(03:19):
at a five year low. The point is a real one,
which is when you have disciplined fiscal settings, inflation is
lower than it would otherwise. Be Labourer promising to return
to the old mess and New Zealanders know what that delivers.
It delivers more tax, more debt. It's not good for
the economy.

Speaker 1 (03:35):
Golden Bay. While I've got you, how badly kicking and
screaming were you dragged to writing that check.

Speaker 2 (03:42):
It was an extremely uncomfortable decision for our government, Mike.
It is a case of the least worst option and
not something I have taken any pleasure in. The alternative, however,
is that we would be the government that presided over
the end of a massively important normic activity in our economy.
Without cement, construction, infrastructure delivery, it grinds to a halt

(04:05):
and New Zealand as at risk, is at risk if
we depend entirely on imported cement. And our assessment was
if we let that factory close down, we could be
putting New Zealand at billions of dollars at risk in
the future, and that is not a prudent place.

Speaker 3 (04:19):
Why didn't you car about the etes.

Speaker 2 (04:22):
Well, this isn't something that would apply to every firm
that is affected by the UTES. Golden Bay can be
distinguished because actually it's such a strategically relevant product that
they produce, and also its issues boil down to these
costs of emissions, whereas some other firms have a range
of other problems going on to do with their product.

Speaker 3 (04:40):
I correct them. So you can do anything with the ETS.

Speaker 2 (04:42):
You want, Yes you can, but you do so with
the risk of two things, one completely undermining that market
so that it no longer functions effectively, and two creating
massive taxpayer cost if you're having to bail out everyone
who needs to pay costs under the ETS. So in
fact year but.

Speaker 1 (05:00):
The year but nic that counter applies to you know,
you're telling me sixty million. This is a one off.
You can you can do the same with the ETS.
It's a one off.

Speaker 2 (05:11):
If we were to do one intervention for one firm
in the emissions trading scheme, that would bring into large
question whether the ETS is actually a real mechanism anymore,
because if everyone thinks that, they just get into a
conger line and say right, were a question now, then
the market doesn't work anymore. And so look, there are
real challenges pricing emissions causes impacts on the economy and

(05:33):
we're going to have to grapple with those, no question
about it.

Speaker 3 (05:36):
All right, appreciate time Finance Minister Nikola Willison for more
from the Mic Asking Breakfast.

Speaker 2 (05:41):
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