The PM has basked in the glow of approving publicity overseas – but the dollar’s dive should bring her back to earth

Prime Minister Jacinda  Ardern  has won lots of favourable publicity, while attending  the  Queen’s funeral  in London and the  UN  General   Assembly  in  New York.

It was  a  sombre  mission  in  London,  less  so  but  no  less  tiring in  New  York  (although the nuclear threat from Russia was sobering).

On  both  occasions, Ardern has represented  the country so  outstandingly  that  New  Zealanders  for  a week  or  two  might have  overlooked  how   poorly   the government  has  been performing  at  home.

Indeed,  one  commentator – Matthew  Hooton  in  the  NZ  Herald –  suggested that if  NZ  became  a  republic  he  would back  Jacinda  Ardern  for president.

Nobody,  he says, better  personifies  contemporary  New  Zealand globally and  in  national celebration or  grief.

Yet  seven years  of  Roboardenomics  have  taken their  toll.  After  what in retrospect seems  like the  golden  years  of  the  Key-English  era, the  NZ   economy  is  being  blitzed   by the  combined impact of  the  Covid pandemic, erratic  governance,  and   raging inflation.

Even Deputy  PM  Grant  Robertson  now  concedes  inflation  may  last  longer  than  originally  thought.

Other symptoms are  becoming apparent. The  NZ  dollar has  plunged  precipitately, most notably slumping an  alarming 19% against  the  US  dollar.

It  has  also  dropped  steeply against  the  Aussie  dollar.  Whereas just a  few  months  ago it  was  well  above 90Ac,  it is  now  around  88Ac, not much fun for  pensioners  spending  their  six-monthly  spells  on  the  Gold  Coast.

It  is  no  consolation  that  the  British  pound  has  also plunged against  the  US  dollar.  At least  the  British are  getting  big  tax  cuts (offset, of course, by the increased government borrowing that has spooked the money markets).

For countries like New Zealand and the UK, the strong US dollar presents bigger problems than just the cost of a trip to New York or Disneyland.

It effectively puts the US at the front of the queue in the fight against inflation. A higher currency offsets the costs of their imports and eases the pressure on local consumers.

The rest of the world will have to work harder to get prices down.

Of  course,  it  is true  that NZ  exporters  receive  higher  returns  through the  lower  value  of  the  dollar – but  the  problem  is that NZ has  been running  large deficits through  the pandemic because of the absence  of  foreign  tourists and  students.

As inflation  lingers longer  with  us  than  might have been expected  just a  few  weeks  ago, interest  rates  might have to go higher than hoped  for.

Economists  at  ANZ and ASB have lifted their forecast peaks for the Official Cash Rate from 4% to 4.75% and 4.25% respectively.

Market pricing now sees a peak of around 4.5% and the implication is that the Reserve Bank will need to work harder to slow the economy and get on top of inflation. Meanwhile Robertson  is  going  ahead  with  his  plan for what the Opposition dubs a “job-tax” just  to pile  an  extra  cost on  business (or  so they  say).

Those  Labour  backbenchers  who (according  to  opinion  polls)   are  in  danger  of  losing their  seats  at  the general  election  next  year  must be  wondering  what else  the  government  can do to  smash  their once-flourishing careers.

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