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Chinese inflation up to 8% from 1% in 2006, Russia nearing 15%, India over 7% and Vietnam up 25% in consumer prices in a year.
]]>I agree with that point intensely.
]]>One of the hardest things for our Reserve Bank is the existence of imported inflation – if overseas countries don’t keep inflation restrained it becomes near impossible for New Zealand to.
However, we have had a situation where tradable inflation has been minimal for a long time – why were we not restraining inflation expectations at this point!
Even if my pick of 5% annual growth in the CPI doesn’t occur in September, you can bet that we are heading that way.
One of the main problems is that people believe we can cut interest rates to solve problems on the “supply side” of the economy. Rising prices for fuel and drought are two factors that reduce our national claim on resources, changing the price of money (the interest rate) is not going to fix this.
]]>I don’t know what institutions could replace the Reserve Bank Act and do any better though. If the head of the Bank wants to collude with the Minister of Finance that any signed agreements will be ignored and that inflation will be ramped up in the leadup to an election rather than risk an interest rate increase, I don’t think there’s any institutional safeguard that can stop it. Moving back to the prior wording of the policy targets agreements with their bright-line rules would be a great start, but again, so long as the head wants to collude with the government, it’s a tough problem. All bright line rules then do is focus folks’ attention on that the rule has been broken. Can you see Key demanding Bollard’s sacking for having interest rates too low, even if we had a very bright line rule in the policy targets agreement? I can’t. Not going into an election.
]]>I suspect that this will not bode well for NZ. Then I see comment that the US is likely to be in recession and suggestions that the UK may well see ‘stagflation’ re-appear and I start to wonder what ‘tea’leaves’ Bollard is reading.
If developing economies, many of which produce oil, are experiencing higher inflation and costs for food, then will this not translate into a desire to keep oil prices up to compensate?
Other reports suggest that China is also seeing significant cost increases which at some stage will lead to higher prices.
Surely this will all impact NZ?
Rightly or wrongly, I am driven to the conclusion that he has yielded to the ‘bully pulpit’ tactics of Clark and Cullen, especially in signalling a cut in interest rates as possible in September.
Yet I tend to think the 4.7% inflation number the RBNZ used in it’s forecasts may well be lower than what we will experience.
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