Cartoon: Retirement planning
Given concerns about future retirement funding, I thought that this cartoon from the excellent Basic Instructions site hit on some important issues:
Archive for month: August, 2009
Is milk implying that the dollar isn’t “too high”
If the dollar incorporates correct expectations of milk price increases like this then I don’t think we should be banging on about it being “too high” (Not that I think we should bang on about it in the first place).
I mean in terms of prices, aluminium has recovered strongly from its lows, beef has been holding firmish, lamb is at record high levels, and there is this indication that dairy prices could rebound. All this is occuring as manufactured goods “inventories” and “capacity” overseas are overblown.
Rising export prices and weak import prices implies higher incomes for NZ, and a higher NZ dollar – one that we shouldn’t complain about. Very interesting.
Update: Homepaddock links to the following graph. Here is the graph from the previous month.
So when Homepaddock includes the latest price, it shows that prices are back to about April levels, but are still well down on last year. The real interest is the trend going forward – with the world recovering will we see prices keep rising? Will input costs stay down (shipping and fertilizer appear to be for now)?
What an inflation targeting central bank would say
The RBA just left rates unchanged and they said:
Inflation is gradually moderating, given the earlier decline in energy and commodity prices, and the effects of weaker demand on prices and labour costs. Given the current prospects for demand and output, this moderation should continue over the year ahead. The higher exchange rate over recent months will assist this moderation, at the margin.
So the higher exchange rate is helping them moderate inflation.
Now our Reserve Bank keeps saying that they are worried that the exchange rate will hurt growth. For this to fit inside our monetary policy story they must be concerned that, if they don’t cut the interest rate, inflation will fall below the target band. So why don’t they just say that?
GST: Do we need to compensate “low income people”
No matter how much I bang on about it, it seems that no-one wants to believe me that GST is a neutral tax and so any increase in GST that is match by a decrease in income tax WITHOUT changing the degree of progressivity will not impact on low income people per see (ht Kiwiblog)
Changing the GST rate hurts people who are currently net savers, and benefits people who are currently net borrowers. If we think that people with low incomes tend to be net borrowers then such a change is actually likely to benefit them.
Now, for a full discussion of this issue (and links to about a million other posts on tax) go here 🙂
Against the 10 reasons for Fitch downgrading NZ
Bernard Hickey posted on the 10 reasons why Fitch should downgrade New Zealand’s credit rating, it is an interesting post that you should run off and read before looking at this 🙂
Now that you have read that I am, for the sake of argument, going to counter each of these points. I cannot provide a “slamdunk” against anything, but I can raise the other side of the argument so that we can really think about the issues that little bit more.
Note that in many ways I agree with Bernard Hickey about our current situation being slightly precarious. However, I feel that going through these factors on the other side is a useful exercise for understand exactly what we need to look at.
Don’t start targeting asset prices, target inflation
ANZ has suggested that we need to broaden the RBNZ target to include asset prices. No.
Everyone seems to be mixing up the RBNZ’s monetary policy goals and its financial stability goals. Now, inside of the financial stability targets a good look at asset prices and a dose of prudential regulation COULD be useful.
In terms of monetary policy this does not matter.
The goal of monetary policy is to shift around the interest rate and the supply of money such that “inflation” is constant. Inflation is the growth in prices that has nothing to do with changes in productivity or changes in relative prices.
Is the CPI imperfect as a measure here, yes. But it is better than an arbitrary measure that mixes up the price of goods and services in the economy with the price of assets (discussed here).
If I had to target something, I would target expected future growth in the adjusted labour cost index. But that is a story for another day 🙂 [in fact this isn’t an issue I have covered in the inflation debate yet, I’ll have to have a sit down and think 😛 ]