inflation

With most of the economic policy options for the coming NZ election now in front of us, it would appear we are continuing down the route of GDP growth, low inflation, government surpluses and Triple A credit ratings as measures of economic policy success. But, these are only means towards some desired ends or ultimate goals? 

It's still the economy, stupid. So what economic offerings are in the tea leaves heading towards this year's election?

What are the possibilities for the future housing prices? What can we do?

Two eminent but retired Reserve Bankers, Don Brash and Arthur Grimes, have argued that house prices should halve. I am not sure whether they actually mean it or are just vividly pointing out that house prices are about double the sustainable level. I probably use a different method of calculation but have come to a similar assessment.

What we are witnessing is an old fashioned ideological debate, dressed up as economics.

The high dollar and its causes suit people who have a lot of New Zealand-denominated wealth; a lower dollar is better for producers - people who use capital to earn money.

Commentators keep talking of our dollar as if it were some kind of national phallic symbol. They say it is reaching parity with Australia because Australia's economy is terrible and ours is much better. We are much better off here, they claim.

The inflation policy target has been missed regularly over the past two years, and will be missed for another year. The evidence is that the target has been moved. So by who? And will we be let in on the secret?

About this time last year, there was an overwhelming clamour from market players that New Zealand's interest rates must go up. I admitted at the time I was perplexed as to why, but presumably wiser heads prevailed. And so up went our interest rates.

And I remain perplexed.

This year marks 25 years since the Reserve Bank Act 1989 was passed. While it has enjoyed a high degree of cross-party support over that period, the original settlement is unwinding and it is now time for a review. That need not involve throwing the anti-inflation baby out with the bathwater, nor the politicisation of a significant public institution.

Last week was a big week for the Reserve Bank. The Bank’s March Monetary Policy Statement, released on Thursday saw the expected announcement of the decision to move to tighten monetary policy – a 25 base-point increase in the Official Cash Rate. This marks the start of a tightening cycle – one that has been quite openly foreshadowed by the Bank for some time.