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591 posts

Ultimate Geek
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Topic # 81775 18-Apr-2011 12:39
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So inflation to 31 March 2011 is 4.5%   Outside of the target band of 0-3%  they are still blaming the GST increases for this high rate and yet economists expect this to rise further in the year to 5.5% ...

These figures include huge increases for petrol and cigerettes, a 4.8% increase for food, and a DECREASE in international airfares of 9.2% - which to me should not be included as its not particularly relevant to the average NZer...  (unless you want to MOVE to Aussie and then its a good thing)

So questions : Hands up who got a pay rise of 4.5% or more lately?  Otherwise you just got another pay decrease!

Serious question: Does anyone know how the reserve bank can control Inflation exactly to bring it back into the target band when it is so far out at the moment - how do they do it and do you think they can do it anytime soon?


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1353 posts

Uber Geek
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  Reply # 460084 18-Apr-2011 12:52
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In china inflation recently hit 5.5% so for the 4th time this year they increased the about of money banks must hold in reserves from 20% to 20.5% meaning around US$54bn that banks would usually lend would have to be kept in reserves.

I guess this is one a way, as well a taking cash out of the system with government bonds and the other usual measures.

By the sounds of the report though they almost expect it to come back inline automatically without much interference due to the rise in GST -which is utter BS.

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Ultimate Geek
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  Reply # 460184 18-Apr-2011 15:58
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The reserve bank can kill inflation simply and quickly by raising interest rates. Unfortunately because the drivers of inflation are externalities (oil, international food prices - milk! ) the economy would tank. This would drive the dollar down, and relieve some of the pressure, but unemployment would go through the roof and future growth would be affected, so they are balancing on a knife edge.

Personally I don'y think the Reserve Bank should act. What it should do is alert policy makers to the fact that our prices are so close to the international market, significant variances due to the vagaries of international markets mean we get squashed quickly when prices overheat (theoretically we also benefit quickly when the prices go down as well...).

Oil makes up a significant part of the CPI cost increases, it influences costs in many areas (food generation, processing, transportation and packaging).

Threfore I think the government should put a price floor on oil. This would give renewable energy companies a baseline price that they need to beat to be profitable. If the international price falls below the baseline then the extra tax take can support the renewables.

Of course it would be much better if the US did this...but would mean we could end our dependence on oil.


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Ultimate Geek
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  Reply # 460191 18-Apr-2011 16:12
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I've looked at IT salaries. I began work in IT in the early 90's, and I reckon wages have dropped if anything (in real terms). During the same period, house prices more than doubled or tripled.

Much of the inflation is caused by global commodity prices which is completely out of control of the reserve bank.

If the reserve bank increases interest rates to control inflation, they are in danger of killing off the economy.

These are dark, dark times for New Zealand.

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Uber Geek
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  Reply # 460205 18-Apr-2011 16:25
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Bee: So inflation to 31 March 2011 is 4.5%   Outside of the target band of 0-3%  they are still blaming the GST increases for this high rate and yet economists expect this to rise further in the year to 5.5% ...

Why do you think that the increase in GST should not be given as the reason?

Stats NZ do not survey every item every quarter,

A number of annual priced items only get included in the quarter that they traditionally rise, ( i.e while GST went up in October, things like uni fees, school uniform prices and many other items that are only paid for/set in the first few months of the year would not have been known , so when those prices get fed through into the index in the quarter they change)

Other items that are not priced every quarter include lots of seasonal items,

The CPI will continue to reflect the GST changes for the next 6 months as winter items get included, which could not have been included in Dec/Mar as they are not priced in the summer.

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  Reply # 460226 18-Apr-2011 17:02
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my 0.02, the decision to raise GST is probably the worst decision ever made by the govt in the 21st century.

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  Reply # 460342 18-Apr-2011 23:36
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nakedmolerat: my 0.02, the decision to raise GST is probably the worst decision ever made by the govt in the 21st century.

Based on what?

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  Reply # 460352 19-Apr-2011 00:35
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the news today pointed out that inflations was justunder 5%, with 2% of that due to GST.
They then siad that wages only went up by 1.8%, and made the comment that this meant wages rose at half the rate of prices.
technically that is true, but when you take into account the fact that there was a tax cut at the same time as GST then I would think the number probably balances out.

gst driven inflation offset by tax cut.
leaving real inflation of just under 2% offset by wage increases of 1.8%

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