“America’s next downturn may have a mild flavour—but a bitter aftertaste”. So ran a headline in The Economist.
Juxtapose that to New Zealand, and we could be served a double dose of the bitter aftertaste.
The problem here is that the authorities apparently didn’t see it coming and now, as it arrives, they could be slow out of the blocks in dealing with it.
Prime Minister Jacinda Ardern kept denying there was a cost-of-living “crisis”.
After its impact nevertheless could be seen to be hitting home, the Finance Minister tacked on to the budget some measures he hoped would assuage any pain being felt by New Zealanders — although the queues at foodbanks were already lengthening.
The latest food price index shows a 0.7% increase in food prices for the month of May. Food now costs 8.9% more than at the time of the last election and fruit and veges cost 16% more.
That has given Opposition parties a free hit at the expense of the governing party.
National’s Nicola Willis said:
“These rapidly rising prices are part of the wider inflation tsunami hitting our economy, with hard-working Kiwis left swamped in its wake, as their wages rise slower than prices. While Labour likes to put this all down to pricing decisions made by supermarkets, the truth is New Zealand’s inflation problem is far more widespread.
“Restaurant prices are rising at their highest rate since 2009, with ready-to eat food prices rising 6 percent in the year to date, as inflation gets a grip beyond supermarket shelves.
“Grant Robertson has no plan to tackle inflation. The Government has instead poured more fuel on the fire with more government spending, pushing up interest rates and worsening the cost of living crisis”.
ACT’s David Seymour contends the PM and Finance Minister are focussed on the PR spin around cost of living and blaming global events like the war in Ukraine.
“Meanwhile everyday New Zealanders who are struggling to make ends meet are getting forgotten. They deserve straight talk and common-sense solutions rather than disingenuous spin designed to distract from the mess they’ve created”.
Seymour notes that New Zealand is a food superpower.
“New Zealand farmers grow enough food for eight times our population. We shouldn’t be in a position where we’re paying through the teeth to put food on the table, and it’s not the farmers and growers making any money.
Some might argue it is the Reserve Bank’s task to curb inflation, but it too has been slow into battle. And the enemy is already taking its toll.
Investors in the local sharemarket saw $4bn carved off the value of their stock.
Labour MPs might not be too concerned at that— but wait till their constituents see what it has done to their KiwiSavings.
Finally, as the Reserve Bank starts firing up its artillery, rising interest rates are hitting mortgage-holders in a way they might never have felt before — and it isn’t any fun for them.
As one journalist noted:
“Arguably, interest rates should have been raised to pre-pandemic levels a lot earlier, which would have cut off the need for steeper rate hikes now.The official cash rate reached its pre-pandemic level of 1% only nearly two years after the country went into lockdown, and well after rising inflation took hold”.
Now the risk is that if the Reserve Bank hoists the official cash rate too fast and too high, it will push the economy into a deeper recession, with all that might mean in terms of rising unemployment, falling house prices, and, dare we say it, greater poverty?
It’s not the kind of scenario any government wants in a looming election year.