Inflation increases are largely driven by rising rents and construction costs. Video / NZ Herald
Opinion by Liam Dann
Liam Dann, Business Editor at Large for New Zealand’s Herald, works as a writer, columnist, radio commentator and as a presenter and producer of videos and podcasts.
Let's call this moment popflation. Ah, OK, maybe let's not.
Let's just recognise that inflation is back in the zeitgeist.
It has become embedded in the consciousness of the general public.
That's a worry because if we all start to believe inflation is with us for the long haul - then it will be.
Central bankers worry a lot about inflation expectation surveys, which point to future patterns of consumer and business behaviour.
As the ANZ economics team pointed out on Friday, it's not last week's ugly headline inflation figure (7.3 per cent) that will be worrying the Reserve Bank.
It is the surge in non-tradables and core inflation measures that is alarming.
This kind of inflation (to put it in relatable terms for this cursed winter season) is like getting secondary infection on top of your viral infection.
It's the kind of inflation that gets embedded deep in the lungs of the economy and persists even when the initial viral load has subsided.
The domestic portion of total inflation - which economists call non-tradable - rose at an annual rate of to 6.3 per cent to June 30 (up from 6 per cent in the year to March).
That was ahead of the RBNZ's May forecast that it would ease to 5.7 per cent.
Let's treat inflation like the pandemic it is. Photo / AP
ANZ notes that non-tradables prices represent just over 60 per cent of the consumer price index and capture goods and services that do not face international competition.
Hairdressing and personal grooming services were the quintessential examples, they said.
That sector saw annual price increases of 6.1 per cent in the latest CPI.
Equally concerning, said the ANZ team, was the surge in core inflation measures.
Core inflation measures "aim to strip out volatile components (like petrol prices) to try to get at the underlying CPI inflation trend".
"Measures of core inflation now range between 4.8 per cent and 6.1 per cent, and have shown no signs of peaking. Even including 2010's GST hike, core inflation hasn't been stronger in the past 20 years for which we have reliable data," ANZ economists said.
The big shocks that actually kicked off the inflationary cycle - the pandemic and stimulus, the supply chain crunch, the war in Ukraine - these are the most dramatic.
They caused big spikes in commodities like oil and food. But those prices are volatile and can also ease quickly. There are signs they have started to.
Even as petrol prices fall inflation can keep spiralling. Photo / NZME
They are transitory. They're just not transitory enough to avoid creating longer-term problems in the domestic economy.
Inflation spreads through the domestic economy because everyone is trying to stay ahead of the cost of living spin-cycle to avoid going backwards financially.
Firms start putting up prices sooner on the assumption that they'll have higher costs coming at them.
Workers need higher wage rises to cover the costs they expect to rise in the year ahead.
Collectively this doesn't work.
While it makes sense for individual businesses and workers to chase rising costs, the overall effect is to prolong inflation for everyone.
We need to act collectively. We need to treat this like a pandemic.
Bringing it back to that horrible term "greedflation", we need those who can afford it to do their bit and soak up some inflationary pain.
That's not something that can be forced or regulated like a lockdown or mask mandate.
We know that because in 1982 the National Government tried. It passed laws to ban wage and prices rises.
It was a dismal failure, woefully unfair and mired in complex exemptions required to keep the economy from collapsing.
There are some businesses - especially small businesses - that simply have to pass on costs or they will go under.
There are workers and people on fixed incomes who need wage rises just to pay the rent and feed their families.
So we should be wary of knee-jerk reactions.
But a public health campaign might not be such a bad idea. The more people understand what is happening, and how we fight it, the better.
If we don't then we will see the Reserve Bank forced to up the medicine - by way of ever higher interest rates.
The side effects of that won't be much fun.
Big business has a role to play here. This isn't the time to be making record profits.
We should look very closely at who is hiking prices and by how much.
And I think the best paid among us also need to recognise that this is a time for restraint.
Inflation is making everyone a little poorer. So buckle-up, tighten your belt, do your bit.
We will beat this. And we'll beat it faster if we act responsibly.
