Liam Dann: Brace yourself for an action-packed inflation reveal this month

Lord of inflation: Paddy Considine as King Viserys Targaryen in The House of the Dragon. Photo / Supplied

OPINION:

The first series of "Inflation war - House of the Dollar" is nearing its dramatic climax and, frankly, I'd have to say it's a bit of relief.

Compared to the original "GFC - Song of Meltdown", it feels like there's been a lot less action and the special effects don't seem quite as impressive.

At times it has felt like the scriptwriters were out of ideas, with storylines on a cycle of endless repeat.

It's had its odd moment, of course.

The collapse of the British pound last week was a nice twist. A bit of comic relief almost, reminding viewers that no matter how powerful a character might be, they are all at the mercy of the mighty Fed king Jerome Powell.

Anyway, here we are, well down the post-stimulus narrative path and still in the dark about the final result.

Will Powell and central bank lords slay the inflation dragon? Will we escape with a soft economic landing? Or will the Northern realms be plunged into a winter of recession?

Will the Targaryens and the Velaryons sort it all out?

What about that comely Dornish knight ... and where's fiscal policy in all of this?

Ahh ... ok ... I'm not sure this analogy was a good idea (but I'm 200 words in and already past my deadline. There's no backing out now).

Even if, like me, you're addicted to both stories, does the comparison go beyond the masochistic tendencies of the fans?

Well yes, my point here is that both sagas are drawing to some sort of conclusion this month - or at least an end-of-series reveal.

That's right, by the end of October we should actually know if inflation has peaked.

I am genuinely excited about the big consumer price inflation data coming up in the US and New Zealand this month - on October 13 and October 18 respectively.

The central narrative underpinning the global economic outlook this year has been that subsidence of pandemic supply pressure and central bank action will have brought inflation to its peak by the middle of the year.

That's important. It's not just that the timing would change if the data shows inflation is still strong.

It's that all the numbers and forecasts for interest rate peaks will change.

That will flow to forecasts for the extent of the economic slowdown we're facing.

It will hit our KiwiSaver funds and house prices and eventually will flow through to job losses.

So, no pressure.

The tension is building and is showing in the increasingly manic behaviour of currency bond and equity markets.

Of course, that market tension is all about the US data, the only number that really matters, as evidenced by the currency turmoil this week.

The US gets more timely, monthly data.

Technically, inflation in the US peaked at 9.1 per cent in the year to June - it was 8.5 per cent in July and 8.3 per cent in August.

But that August number missed market expectations and markets reacted very badly.

In fact, it's when this most recent round of market turmoil began.

There will be a market consensus for the September data and if it misses the mark we could see a severe market sell-off around the world.

Or - here's the good news - if the number beats the consensus we could see a huge relief rally.

It could be the beginning of the end of the slump ... or the end of the beginning of the recovery - whichever way you want to look at it.

In New Zealand, we saw the annual inflation rate hit 7.3 per cent in the year to June 30.

On October 18 we'll get fresh numbers for the year to September 30.

They should provide some solid evidence about how seriously inflation has become embedded in the economy.

Economists have maintained forecasts that inflation has peaked, even as they have become increasingly gloomy about how long it will take to ease.

It's likely international cost pressures eased during the quarter - although the falling value of the kiwi won't have helped.

Less certain will be domestic inflation pressure - in particular labour costs, driven by the extremely tight job market.

In fact, those costs are almost certainly still rising - but by how much?

A peak in local inflation would be heartening. But won't mean the end of the fight.

The currency storm of the past week has highlighted the harsh reality that there is very little that we can do domestically to beat inflation until the global conditions ease.

We effectively have to wait - with the rest of the world - until the US has it beat and the Federal Reserve looks to pause on rate rises.

The true king of currency: Federal Reserve chair Jerome Powell. Photo / AP

That's not to say we can afford to stray from a narrowly prescribed policy path on monetary policy.

The Reserve Bank will have to emphasise its hawkish outlook on rates just to stay on par.

We also need the Government to stay focused on controlling what it can. Getting migrant workers across the border to ease the labour shortage would help.

We need to minimise the damage that the pandemic has wrought, not (as the British Tories have done) make it worse.

We have some control over how we pay the price of the pandemic, the timing of those payments and where they fall across society.