With the Reserve Bank tightening monetary policy faster than anywhere else in the world, persistently high local inflation adds weight to opposition accusations that government spending is to blame.
Open up a page of live commodity market prices (I use the Trading Economics site).
The indexes are a sea of red.
Compared to a year ago, oil prices are off 30 per cent, natural gas is down 75 per cent, iron ore is down 30 per cent, coal is off 56 per cent, and lithium is down 60 per cent.
Lumber (I think that’s Amercian for timber) is down 65 per cent.
You wouldn’t know it from your supermarket shop, but food prices are in decline too.
The latest ANZ commodity index - which measures the value of our major exports (dairy, beef, lamb) - was off about 17 per cent for the year to April 30. (10 per cent in currency-adjusted terms.)
But other important products are way down too. Wheat and oats are off by 50 per cent, cooking oils are down between 30 and 40 per cent.
Of all the major traded foods, just sugar and cocoa are stuck at elevated levels compared to a year ago (bad news for chocolate lovers).
Shipping costs are back where they were pre-Covid.
The point is that the inflationary supply shocks from the pandemic and the war in Ukraine have played through.
That part of the inflationary story is proving, as many of us anticipated, to be transitory.
We’re seeing a steep fall for what economists call the tradeable side of the inflation equation.
But that the flow-on inflation through domestic economies - as local businesses pass on costs and wages rise - is taking much longer to unwind.
That’s the bit economists call non-tradable inflation.
The good news is that the two are related. And the deflationary effect of global prices should start to flow through to domestic pricing.
That’s already happening in the US, where both topline inflation and core inflation (which excludes volatile prices for things like food and oil) have both fallen for 10 successive months, to 4.5 and 5.5 per cent respectively.
But as last week’s data showed, with a 12.5 per cent annual food price rise, it doesn’t seem to be flowing through very fast here.
That means, politically, inflation starts to get more difficult for the Government.
A year ago we were in the same place as most other comparable economies.
Attacks by opposition parties blaming Labour for inflation didn’t really seem to hold much credibility.
We could all see what was going on around the world on the supply side.
Arguments about the relative merits of Covid stimulus just seemed to divide people along old pandemic response lines.
I still think that underdelivering on that stimulus would have caused more acute economic pain, at a time when the world had enough to worry about.
It saved jobs.
But it was a band-aid and it now needs to be removed.
Do we rip it off fast or slow? The RBNZ seems intent on the former and the Government, thus far, the latter.
It remains to be seen whether this is a complementary approach - with fiscal policy mitigating the worst of the pain.
Or, whether these are conflicting approaches that have just prolonged the pain
But the argument that inflation has been exacerbated by government spending is starting to hold more weight.
National Party leader Christopher Luxon and Deputy leader Nicola Willis say Labour's spending has fueled inflation. Photo / Jed Bradley
Opposition parties like to call it “loose” government spending.
Fair enough, that’s their job, but it is too loaded a term for me.
Minimum wage rises and living cost handouts and fuel tax cuts were choices this Government made.
Presumably, they stand by those calls and will make the case that mitigating inflation pain for poorer families is fairer - even if putting extra cash in the economy slowed inflation’s overall decline.
That is not an unreasonable position for a centre-left party.
There are also some mitigating factors.
In New Zealand, the flooding and weather events have compounded food price inflation.
Broadly, economists think local inflation has peaked.
But the risk for Labour is that time is running out. There are only a handful of meaningful data releases to come between now and October.
Consensus forecasts are for a very slow decline over the next 12 months unless the economy slumps much harder than expected.
Nobody wants that.
And on balance, with net migration back at record highs and unemployment still near-record lows it looks more likely that the economy is robust enough to muddle through the rebalancing process.
But that might mean inflation for longer ... and a tougher story to sell to the electorate in October.
