Espiner on Inflation

Colin Espiner looks at what he calls the horrible inflation data:

Labour will be happy that this week’s truly horrible inflation data came out during the Parliamentary recess.

After all, the highest inflation in 13 years and the biggest quarterly increase in food prices since June 1990 isn’t something either Prime Minister Helen Clark or Finance Minister Michael Cullen particularly wishes to be quizzed on.

It’s amazing how quickly things have turned. It seems like only yesterday that ministers were asking each other patsy questions in the House so they could in turn stand and brag about record low unemployment, growth rates higher than Australia’s, or some other positive fiscal indicator.

It never ceases to surprise me how quick any government is to claim the credit when things are going well, and how fast it is to distance itself when things are not.

Take Cullen’s prepared lines yesterday: “It is important to remember that our economic challenges are not of New Zealand’s making. The global increase in the prices of petrol and food are outside New Zealand’s control.”

Now whether you agree with Cullen or not depends, I guess, on whether you subscribe to the free trade market economy we operate in. But assuming he’s right, it’s still ironic. Can you imagine Cullen saying, after delivering one of his whopping surpluses of yesteryear: “It is important to remember that our economic good fortune is not of New Zealand’s making. The global rises in commodity prices are outside New Zealand’s control.”

Um. Don’t think so.

So true. The reality is that international forces will always have more of an impact than anything we do domestically. However Governments can and do make a difference around the margins – especially by focusing on increasing productivity and havign sensible fiscal and monetrary policy.

However, Cullen can distance himself all he likes from the causes of inflation running at 4% and heading for 5%. He can blame all the Middle East unrest and growth of developing nations he likes for the fact that petrol is up a whopping 25% in the last year. He can moo about the rise in the value of dairy prices that has seen milk up 22% in a year and cheese 62% until the cows come home.

The fact is it’s happened on his watch and voters, rightly or wrongly, expect him to do something about it. Cullen recognised this yesterday, referring to the October 1 tax cuts package which, he said, “will provide some relief”.  Actually, as Cullen knows only too well, it will deliver very little.

The cruel reality of inflation is that the value of his $16 a week for the average wage-earner is eroding by the day. By the time October 1 rolls around, the increase in the price of petrol alone since the Budget would have accounted for half of the extra Cullen has promised. Fresh increases in the price of milk, bread, cheese, and fruit and vegetables will take care of the rest.

And people know deep down Dr Cullen is not giving tax cuts to help people out. He cancelled tax cuts just over a year ago, and his u-turn on tax cuts was poll driven. Now u-turns are part of politics, but to then claim the u-turn as a virtue goes too far with some people. It would be like National trying to take credit for income related state rentals, when everyone knows they prefer market rentals.

We could always have a debate about it, if the Opposition would engage. Yet all I know of National’s plans for the economy is that it will reduce taxes, “cut red tape”, spend more on infrastructure, reduce government spending “so that interest rates track downwards” and improve education standards.

There’s almost enough apple pie in those statements to feed a starving family of five for a week. But the polls show voters are still happy with this level of detail from National, for the meantime anyway.

That’s a great line – enough apple pie to feed a starving family of five. And some truth in Colin’s criticism. He has however overlooked the fibre to the home policy which is a major point of difference with Labour, and is intended to be a significant foundation for lifting NZ’s productivity and economic growth.