While global inflation (imported inflation) has seen a significant decline and is back to historic norms, domestic inflation tells a different story. This remains stubbornly high with central and local government and the private sector all doing their best to imitate a Doctor Dolittle pushmi-pullyu act.
Essential costs like insurance, rates and power continue to rise, straining household budgets. Insurance premiums have soared by over 20% and local rates have increased by 20% to 25%, adding to the already groaning weight of financial pressures on New Zealanders.
Soaring power prices are another looming concern. Wholesale prices are currently 100% higher than at the same time last year and 50% higher than six months ago.
Once power retailers’ hedging contracts expire, these increasing costs will become mainstream, further burdening consumers.
This escalation in power prices is a critical issue that requires immediate and effective policy interventions to prevent another significant impact on the cost of living that will add to our inflationary woes.
Bear in mind, it’s not solely up to the Reserve Bank to sort out inflation, even if it is their mandate (which is generally the purists’ view). Inflation is more complex than that. These soaring energy costs reflect a major can-kicking issue from successive governments over the past few decades – unfortunately, the chickens are coming home to roost now.
Yes, the drop in global inflation is a welcome relief. But it’s vital that we recognise this as largely beyond our control.
As a country almost literally at the end of the earth, New Zealand is more prone to shipping inflation than any other developed nation. Coupled with our short-sighted ban on oil and gas exploration, we lack energy independence despite our abundance of natural resources. We’re vulnerable to these pressures and we don’t have a backup plan.
Global markets are volatile and can be influenced by myriad unpredictable factors. Another geopolitical event could easily trigger a dramatic spike in global inflation. For instance, a flare-up in Yemen or disruptions in global shipping could swiftly reverse the current trend.
The geopolitical landscape remains unstable and relying on the current downtrend in global inflation without addressing domestic issues is a precarious strategy. The recent conflict in Ukraine is a stark reminder of how quickly global dynamics can change, leading to economic shocks that ripple across the world.
If a similar event were to occur, such as heightened tensions in the Middle East or significant disruptions in international shipping routes, New Zealand’s economy could face severe repercussions.
Moreover, the ban on new oil and gas exploration has left New Zealand more reliant on imported energy, making us susceptible to international market fluctuations. This policy was intended to push for greener energy solutions but lacks a comprehensive transition strategy to ensure energy security in the interim and at a cost that allows commerce to flourish.
Addressing domestic inflation requires more than just celebrating global trends. It demands comprehensive policies and proactive measures to tackle the root causes at home.
The Government needs to address the rising costs of essential services such as insurance, rates and power. The rampant increases in these areas reflect not only the direct impact of inflation but also the cascading effects of other economic policies over the past three decades.
The business sector has trimmed its inflationary intentions in recent years, and households have closed their wallets, but the government sector has been a laggard, with meaningful change to expenditure being half-hearted at best.
Effective regulation and oversight are essential to ensure that these costs do not further spiral out of control and place an undue burden on households.
Only by addressing these domestic issues head-on can we claim a genuine victory against inflation. It is crucial to develop a multifaceted approach that includes energy independence, economic diversification and robust regulatory frameworks.
In doing so, we can ensure lasting economic stability for New Zealand and protect against future inflationary pressures.
Celebrating global trends without tackling local challenges is a recipe for complacency and potentially more economic hardship.
The path to true economic resilience lies in proactive, thoughtful and comprehensive policy-making that addresses both immediate concerns and long-term goals.
