The inflation culprit

Robert MacCulloch writes:

Former RBNZ Assistant Governor & Chief Economist, John McDermott, who was at the IMF, Yale-trained, Director of Motu & winner of the NZIER Economist Award, has slammed the RBNZ’s monetary policy, blaming it for the inflation mess we’re in. We already knew as much, but to have it confirmed by John is a big deal.

This is unusual and hence a big deal. Until the current Governor took over, it was incredibly rare for former Governors or senior staff to criticise the Reserve Bank’s decisions.

“We know that in the long run, excessive money-supply growth causes inflation and that the monetary base is under the control of the Reserve Bank. So why is the Reserve Bank allowing its monetary base to expand long after the emergency Covid settings are no longer needed?

…. It makes for sobering reading when you compare NZ’s monetary experience with that of Norway, a country with a similar population and an identical monetary policy regime … The assessment that emergency monetary settings were no longer needed seems to have been made early in Norway. By the end of 2020, its monetary base was back at a normal level. The result was that the Norges Bank kept inflation under better control than the RBNZ”.

At the end of March the inflation rate in Norway was 4.5% compared to 6.9% in New Zealand.