Causes of Inflation

An interesting press release from Bill English yesterday which had the graph above attached to it.

Since 2004, when the Reserve Bank started raising the official cash rate. the growth in private sector consumption has noticeably declined. While growth in public sector consumption has remained high at close to 5%.

In some ways this is no surprise. Higher interest rates do affect the private sector. However if inflation is pushing people wages up, it increases the Government’s tax take, and the Government just keeps spending more and more. In fact now the Government has no net debt, the higher interest rates are, the more money it makes.