No Dorothy, supermarkets aren’t to blame for inflation

Eric Crampton writes:

Governments like scapegoats. A good scapegoat can take the blame for something that is a government’s fault. It can also help justify measures the government was itching to take for other reasons.

When all goes well, a very good scapegoat can do both.

On Wednesday, Minister of Commerce and Consumer Affairs David Clark blamed the supermarkets for inflation.

Yep, it wasn’t printing too much money. It was New World and Countdown to blame!

Greed is a poor explanation for inflation, not because companies are altruists, but because greed is always with us. It isn’t cyclical.

Should we credit corporate public-spiritedness for the five years from December 2011 through December 2016 when inflation ran well below the midpoint of the RBNZ inflation band?

Of course not. Monetary policy drives inflation, not changes in greed.

It is depressing that a Minister thinks we are so stupid, they run such lines.

Even worse, Clark implicitly compared March quarter food price figures with December quarter CPI figures. March quarter inflation figures will not be released until later this week. It is currently impossible to say whether food price inflation is above or below the overall CPI.

We now have this data and food price inflation of 6.7% is lower than overall inflation of 6.9%. And food only makes up 18.5% of the overall CPI – 71.5% is other consumer costs such as housing and transport.

In short, the minister was wrong from beginning to end. Absolute economic ignorance would be the most charitable explanation, but even then he might have considered asking Treasury’s advice.

More plausibly, Clark was scapegoating the supermarkets to justify populist measures against them, or to deflect attention from his government’s failure to keep the Reserve Bank on target, or both.

Voters should be wary of policies justified by scapegoating.

Hey look at that, over there, don’t blame us.