As for government spending, the most significant has been the $13 billion spent on wage subsidies during Covid lockdowns that National supported and pushed to be broadened.
While there are issues with businesses getting the wage subsidy that subsequently made healthy profits, it was inflationary as much as any government spending can be inflationary.
You can say that increasing superannuation payments is inflationary if it contributes to more demand for food and electricity.
It's a weak argument National is making and puts it on them to say what government spending they would cut. Labour and the Greens should relish that debate.
When it comes to inflation, the actions of the Reserve Bank of New Zealand deserve the most scrutiny.
The Reserve Bank is empowered by a 1989 Act of Parliament (modified in 2021) to use monetary policy to keep inflation within 1-3 per cent. Parliament has no direct control over what the present governor of the Reserve Bank, Adrian Orr, says or does.
Keeping inflation within the target band is not the Reserve Bank's only function. Since monetary policy came into favour in the 1980s, its other role is to stimulate the economy.
This is done by lowering the Official Cash Rate (OCR), the interest rate on short, overnight lending between the Reserve Bank and trading banks. A lower OCR brings down the interest rates offered by banks to their customers.
If credit is cheaper, the cost of doing business is less, and the cost of servicing a mortgage is less. Businesses and households feel richer and spend more. While low
interest rates don't offer much reward for saving.
Inflation is targeted by doing the reverse. Raising the OCR increases interest rates, discouraging borrowing and encouraging saving. This takes demand out of the economy and brings inflation down.
Keeping inflation within 1-3 per cent is the perceived sweet spot, providing a stable environment for banks to lend and expand the money supply for a growing economy.
After the global financial crisis in 2008, to stimulate economic activity our Reserve Bank slashed the OCR from 8.25 per cent in June 2008 to 2.5 per cent in April 2009. It remained at low levels until Covid hit, when it was cut further, down to 0.25 per cent.
The Reserve Bank then did something unprecedented in New Zealand. It started "printing money" by buying back government bonds with money it invented on its balance sheet. Incredibly, they created $53 billion before they stopped in July 2021.
The Reserve Bank's actions kept bank interest rates low during the first lockdown and the long Auckland lockdown. And financial markets became flooded with new money.
Encouraged by low interest rates, property developers went into overdrive, contributing to a building boom that had prices for materials and labour increase on the back of shortages.
While landlords, housing investors, and first-home buyers took advantage of low mortgage lending rates to buy houses and apartments. The average house price increased 44 per cent in two years.
And this at a time when tourists were non-existent, many businesses were on the brink, and our biggest city was in lockdown for months. Something had to be seriously wrong with what the Reserve Bank was doing.
They provided too much cheap money, fuelling house price inflation and undoubtedly contributing to consumer price inflation. It's been a double hit for people who don't own their home.
However, prices for existing homes aren't included in the Consumer Price Index (CPI), which supplies the official figures we're getting on inflation. They should be.
Our present measure of inflation doesn't tell the full story of how young people, in particular, have had their future prospects impoverished by the actions of the Reserve Bank.
Belatedly, the Reserve Bank lifted the OCR from 0.25 per cent in October to 1.5 per cent in April. More increases are expected, but the damage has been done.
To get on top of inflation, it now looks like the Reserve Bank is prepared to tip the economy into recession.
In response to OCR increases, private banks have raised their floating interest rates to about 5.5 per cent. Still low by historical standards, but trending upwards.
With higher interest rates, people and businesses will more likely pay off debt or save if they can. Spending is reduced, and the hoped-for fall in inflation may result.
However, higher interest rates will mean many debt-laden businesses, big and small, that have struggled through Covid will fail. Unemployment will rise.
Some homeowners, especially those who've bought at the top of the market, will have difficulty paying their mortgage.
A crisis is brewing.
Whatever unfolds, the role of the Reserve Bank in fuelling house price inflation and boosting the wealth of investors and banks over the past two years should be subject to a public inquiry. Reform must follow.
Our young people should be demanding it. And the rest of us should be demanding it on their behalf.
