Matt Cowley: Reserve Bank governor Adrian Orr was right to increase the official cash rate

Reserve Bank Governor Adrian Orr has raised the official cash rate this week. Photo / Mark Mitchell

COMMENT:

Adrian Orr was right to increase the official cash rate this week.

New Zealand’s defiant inflation has resulted in major cost increases, which will do even more harm within our communities, and to our economy, unless it’s controlled.

The traffic around Tauranga’s shopping centres this week for Black Friday sales shows consumers are still buying.

This means businesses are desperate for staff, and they are doing whatever is necessary to attract and retain workers.

This competition for scarce staff and resources is leading to rising costs across the board. Inflation has permanently embedded itself in all areas of our economy – and life generally.

Unfortunately, the Government’s decisions are adding fuel to the inflation fire with continued immigration bottlenecks and the Fair Pay Agreements coming into effect next Thursday, December 1.

This week Adrian Orr sent a clear message that the OCR will keep increasing if wage inflation keeps climbing, which will hurt first-home buyers and low-income households the most.

It’s hard to say it, but a recession next year may even be positive news if it helps ease inflation pressures and lower the chances of further increases to the OCR.

A high OCR is not helping to address our housing shortage, as home ownership becomes even more unobtainable for a growing number of people.

The OCR has already put the brakes on a growing number of housing projects. As buyer demand drops off, the banks reconsider their previously agreed lending to developers.

Tauranga Business Chamber chief executive Matt Cowley. Photo / Mead Norton

Slowing down the supply of new housing, when our population continues to grow between 1 to 2 per cent annually, will likely result in more expensive rentals due to fiercer competition.

In a cooling economy with high inflation, I’m interested in the business community’s views on the Tauranga City Council’s plans to continue to increase its commercial rates on businesses to address the city’s housing, transport and amenity needs.

A business’ ability to attract staff depends not only what the company offers, but also on the liveability of the community – such as housing, ease of getting around, and wider amenities.

For instance, McCleod’s Cranes says it’s looking to buy rentals to attract staff as Tauranga’s housing crisis threatens the local economy.

I would suggest that, on balance, businesses would accept higher commercial rates, so long as the council can demonstrate that they are achieving effective outcomes.

The reason the business community has generally supported the city’s commissioners was in the hope they would break Tauranga’s inertia and make progress on the key issues. They expect to see the outcomes of their investment.