Blaming China and India for our inflation doesn’t really work. I agree that soft commodity prices are rising as a result of them, however the world price of manufactured goods is falling. The main factor driving the rise in the general price level is short run demand, which is a factor of the tight labour market and strong house prices.

Furthermore, Kimble is right about the tradeable business, the price of imports is helping us out. Furthermore, since we don’t make everything in this country, some imports have to substitute domestic production (eg Cars).

If our labour force was more skilled, they would all go overseas 😉 . I don’t think our education system is a dead duck. If people want to train, they have the opportunity, they just have to do it. Tax is a complicated issue, I think we should have toll roads, but I don’t think they should be our only tax. If we could fund everything through correction taxes that would be awesome, but we can’t. So we need either some GST or income tax.

I think the local labour market has a significant impact as well. Housing as well.

The Reserve Bank doesnt control prices. I dont see how they increase the resource productivity of private enterprises.

“Weren’t imports meant to be a supplement to domestic production, rather than a substitution, so as to mitigate the chances of inflation?”

Tradeable inflation is running about 1.2% (???), non-tradeable inflation is running at over 4% for the year. So I reckon imports are dampening the overall inflation.

In the US thy have municipal bonds which are sold for a specific use and sometimes will have their payments coming from that use. For example, a bond will be issued for a new highway, that highway is tolled, the tolls are used to pay the bonds. This is all set in stone before the bonds are issued.

How accurate are our CPI and inflation statistics anyway? Are they manipulated to the extent that such statistics are in the United States as revealed by the shadowstats website? I honestly wouldn’t put it past the Labour government. Thats coming from someone who voted for them.

http://www.shadowstats.com/cgi-bin/sgs/article/id=340

Besides I think its an exercise in futility for the government to try and mitigate the effects of inflation, because the causes for it are beyond their control. The causes are the strong growth in commodity consumption due to the rapid economic development of China and India.

http://www.worldwatch.org/node/5106

The unintended consequence of the manipulation of by the Reserve Bank as it absolves private enterprise of the need to increase their resource productivity (which would be more beneficial longterm) as they can rely on the Reserve Bank to do that job for them e.g. controlling prices.

Weren’t imports meant to be a supplement to domestic production, rather than a substitution, so as to mitigate the chances of inflation?

As for solution to improve the productive capacity of this country, how about radical reform of our education system (English Tripartite School System), targetted funding of tertiary education to alleviate our current skill shortage. A precedent of the success of this is Ireland in the 90s, the issuing of municipal bonds to make up for two decades of chronic underinvestment in our infrastructure (telecommunications, power, water, sewage, transport etc), reform of our tax policy (accelerated depreciation, taxshifting etc), and a radical rethink regarding local and central government resource use regulations (MUL).

What do you think of this proposal Matt?

“One possible solution is to turn each state road system into a non-profit corporation funded entirely from tolls not taxes. The stockholders in the corporation would be the road users. They elect a board to run the roads and determine road spending and tolls. Funds can not be diverted to other vanity projects since all funding belongs only to the road corporation. And the only source for funding would be the tolls not taxes subject to political control.”
http://freestudents.blogspot.com/2007/08/politics-bridges-and-one-possible.html

I though of a similar concept awhile ago that I thought would be perfectly suited to our healthsystem, which you must admit is in drastic need of reform.

http://www.kiwiblog.co.nz/2007/08/health_targets.html#comments

However, I don’t think that firing a few civil servants or keeping interest rates so low that inflation goes through the roof are solutions to increasing NZs productive capacity. A low inflation environment is what we need to promote investment, and at the moment that requires having high interest rates. Trust me, other countries will be stuck under the pressure of high interest rates in a few years, and they’ll be complaining just like we have been.

Rodney Hide actually has the right idea. (No I’m not an Actoid. A Gnat actually) The best way to kill off inflation is to increase our growth rate by producing more real goods and services and less public servants.