Should we hit inflation hard and fast?

With a hawkish statement from the Reserve Bank of New Zealand yesterday it is a good time to ask – do we need a preemptive strike against inflation, David Grimmond thinks so (Infometrics link).

This reasoning brings us to the need for the Bank to make an early strike at growing inflation pressures.  Given weak New Zealand and world demand conditions, inflation outcomes have remained below 2%pa for more than two years.  But there are a number of reasons to be concerned that inflation pressures could quickly mount this year.  To begin with, the low inflation outcomes of recent years have been largely a world inflation outcome, with declines in tradable prices offsetting non-tradable inflation that has persistently been above 2%pa.  With the period of deflation for tradable goods coming to an end, the headline inflation rate could begin climbing very quickly in 2014.

With inflation expectations also on the rise, it would suggest that a prudent Reserve Bank would seriously consider increasing interest rates sooner rather than later – perhaps less in need of reducing current demand pressures, but rather to strongly signal its continued resolve for maintaining price stability, and pre-empting a build-up of inflation inertia.

Do you agree that, given the rebuild and rising economic momentum the Bank needs to act confidently to maintain its credibility?  Or with pricing pressures, and expectations of price pressures, still relatively low would this be jumping the boat in an overzealous attempt to maintain credibility?

 

 

Expanding on the idea of “more competition in the services sector”

We’ve established in the past that, when looking at productivity, it is important to answer questions about “why” productivity is doing what it is doing and why we care.

Having accepted that there are industry specific differences in productivity between New Zealand and Australia (a relatively comparable nation), the Productivity Commission has been focused on competition in the services sector – which includes many of the underperforming industries.  Although they’d identified occupational licencing as an issue previously, they are putting that to the side to now (although that and patents are still areas of interest), and in their new report are focusing on two things:

  • stimulating a more competitive environment; and
  • the successful adoption of information and communications technology (ICT) by service firms.

Discussion below the flap.  Update:  I see the PC has a summary and an infographic.  Nice.

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New Zealand’s sexiest economist 2014: Nominations open

NOTE:  Nominations are now closed

Last year I learnt a very important lesson – I am not the only person that thinks that the study and application of economics is sexy.  The sexiest economist competition led to a lot of discussion, a deserved winner (don’t let me forget to pass on a trophy at some point), and two comments I heard repeatedly for the rest of the year:

  1. Are you going to do this again next year so I can vote for X.
  2. Where is this person Y I really wanted to vote for – specifically mentioning the lack of female contestants.

I had no intention of doing a 2014 version of this competition, but I’m also vulnerable to peer pressure, so here we go again!

However, things will be a bit different this time.  I am asking for your nominations for New Zealand’s sexiest (public facing) economist – you are allowed to nominate multiple economists.  Details are below the flap.

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Truth is a strong word when discussing inequality …

Over at Polity Rob Salmond has promised us the truth about the gap between NZ’s rich and the rest (via Toby Manhire)!  This would be encouraging, given the complexity of the data.

I just want to say at the start I have full respect for people who want to discuss these important issues, including the use of data.  However, after reading his post I think he may have oversold his claim.  Don’t get me wrong, what he posted was interesting – if you go over to his post you will see a graph that shows aggregate taxable income for three groups – those being taxed on $150k a year, those being taxed on $100-$150k a year, and those being taxed on less than $100k.

I do not have the data sadly, but I have some reservations stemming from what I see in the post.  For some reason he is only quoted gains since 2010/11 – ignoring the whitewash for high income earners that occurred in 2009/10 due to the global financial crisis.  Furthermore, the income changes he quotes are biased (to the point that they aren’t representative of household income at all) in two ways:

Update:  Rob has re-evaluated the data and changed his interpretation of what it is saying, he has also blogged saying so – full respect for that.  His intent, of going through the data to try and figure out what is going on with policy relevant issues is admirable – and it is good that there is this blogging format where we can work through data and interpretation online.  With income inequality getting a bigger focus, there is going to be a lot more writing across New Zealand sites on this issues in the coming year.  For those who aren’t interested, the internet is a big place :)

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Quick note on Labour tax annoucement

I have very little time to write anything substantive – and an internet connection that is awful at best.  But I just wanted to say I agree with David Cunliffe’s comments here when it comes to dumping the tax free threshold and tax-free fruit and vege policies:

We believe there are better ways to help struggling Kiwi families

Indeed, both these policies seemed poorly targeted – although I always leave the option open for analysis to prove otherwise :)

We will see what they announce this year I guess!