Inflation is not slowing down yet, so can Hipkins take a tip from Prebble and risk a snap election?

Inflation is showing little sign of slowing down, posing  a  problem for freshly minted PM Chris Hipkins.

According to that  old campaigner Richard Prebble,  Hipkins should call a snap election. If he  waits till October, he risks being swept away.

The dilemma for the new leader is that fighting an election while inflation is raging is  no fun at all.  It underlines the extent  of  Labour’s failure to implement successful economic policies.

Statistics NZ reported  the CPI rose 7.2% in the latest quarter.  It follows months of high inflation where prices frequently rose faster than at any time since the early 1990s.

BRYCE EDWARDS: Will the Govt act on mega bank profits and reform the banking sector?

Dr Bryce Edwards writes – 

The corporate retail banks are making mega profits on the back of Government policies and indirect subsidies of recent years. As a result, there are calls from across almost the whole political spectrum for greater regulation of the banking sector, including windfall taxes. But will outrage turn into action?

Prime Minister Jacinda Ardern led the charge against the banks this week, warning the likes of ANZ – which announced recently that its profits were up 20 per cent to a record $2.3b – that they are at risk of losing their “social license” to operate here.

The Prime Minister sounded tough, but she was also quick to admit that she has no intention of taking any action or changing the rules. The Finance Minister Grant Robertson was also fast to rule out any reforms or further investigations.

Critics have said that Ardern’s plea for the banks to have “self-reflection” is wishful thinking in the extreme. The Green Party’s finance spokesperson, Julie Ann Genter, put forward this analogy: “Expecting banks… to put people ahead of profit would be a bit like putting the fox in charge of the hen house.”

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.

“Considerable uncertainty” clouds the outlook as Robertson prepares to present 2022 Budget

Is  the  NZ  economy heading for  a  hard  landing?  As  the  country  awaits  the  presentation of Budget 2022, the omens  are not  good.

The ANZ Bank, in its  latest quarterly economic  forecast,  says  many  commentators   are talking  about the risks of  a  recession. It’s  a valid concern,  as  it is  clear  that  the  impact of  hikes in the  official cash rate (OCR)  has  already reverberated through the  housing  market  through  higher  mortgage  rates.  The  bank’s  economists  say this adds an extra layer of  concern  over  and  above fears  about the  cost  of  living  and  sustainability of  asset  prices  (via  KiwiSaver balances  and the  like).

“However  it is  imperative that  the  Reserve  Bank gets  on top of  inflation quickly. Going hard should, in theory, lessen   the  need to  hike by  more in total and that has been a  key RBNZ message.

“ Raising  rates  aggressively   while  consumer  confidence  is  around record  lows and  housing  retreating  might seem counter-intuitive,  but  the policy  choice  is  between some  pain now  or  probably  more  pain  later. Indeed  not  hiking aggressively now  would  itself be risky.

“If  bond  market  participants  sense  that  central banks are going soft on containing  inflation, long-term interest  rates  are  likely  to  rise  even more  sharply  over time  as investors  seek  inflation compensation. This  is what happened  in the  1980’s  and it is  crucial that  this  is  avoided this  time  around so  as to avoid a  deep  and prolonged  period  of  stagflation.”

RBNZ on the back foot as inflation rises – but consumers are struggling on a sticky wicket, too, as food costs soar

Reserve Bank “not in a  good  place”, admits  governor.   This  was  the  headline  Radio NZ  News  ran over  a  report of  RBNZ governor Adrian  Orr  speaking  to an International Monetary Fund  seminar.

He  might have  added  that the average  Kiwi consumer  is  “not  in  a  good  place”, either,   when doing the  daily  shopping,  with  food  costs soaring  and  inflation  rising at  a faster  rate  than  it  has  for nearly  30  years.

But isn’t  it  Orr’s  job to  keep  inflation  under  control – or can he pass the buck (as it shrinks in value) to the Monetary Policy Committee?

And whatever happened to the inflation target?

Orr  does  concede that  the  RBNZ  was caught on the back foot,  but argues  that was the same for many other central banks, as a  result of supply chain shocks and the Russian invasion of Ukraine, which had exacerbated inflation pressures.

Moreover, he  contends the RBNZ had been “reasonably aggressive” in ending its bond-buying programme last year and moving to lift the official cash rate,  and is also balancing risks.

A smack in the face from inflation

Roger Bootle is a British monetary economist.  He had a good run a few decades ago.  Since then, his warnings about monetary instability and inflationary risk have appeared less prescient.  

But the next few decades may be kinder to him (if not to us).

Sports organisations score from govt handouts but truck shop operators are nobbled by new lending rules

Finance Minister Grant Robertson, wearing his Sport and Recreation ministerial hat, can show he can be a big spender and draw voters’ attention to his largess each time he dispenses money from the funds under his control – or the control of an agency within his ministerial bailiwick.

Yesterday he announced the first distributions from the $265 million Sport Recovery Package, in contrast to colleague Kri Faafoi, who was winning his brownie points by crimping the incomes of mobile traders and truck shops.

Faafoi advised us that mobile-traders and truck shops since June 1 are covered by the lending protections in the Credit Contracts and Consumer Finance Act. This means that all mobile-traders must meet requirements such as assessing affordability, before agreeing to sell any goods on credit.

We can only wonder why it took Faafoi a few days before he cranked up his publicity machine to inform us how borrowers are being protected – by a cap on interest and fees at a maximum of 0.8% a day, for example.

Sorry, but we can’t find a financial whiz to assure us the short-term economic outlook is bright

It’s been a grim week for investors.  RNZ reported the local sharemarket continued to slide yesterday, because of anxiety about the coronavirus and the prospect of it sparking a global recession,  and the NZ dollar tumbled after the first case in this country was confirmed.

The market mayhem was induced by the global panic as news of more coronavirus cases, notably in Italy, raised concerns of the virus’s economic impact being much greater than previously expected.

The market started the week at a record high but fell every day and had lost almost 7 per cent by the end of trading on Friday.

The three main US indexes ended the week down 10% or more.

“A known unknown” is how one major company boss described the economic fallout of coronavirus to the BBC, which reported the markets have woken up to the disruption to the economic activity from coronavirus being wider, deeper and perhaps longer lasting than previously assumed.

Lopping the OCR might be a stroke of genius – or an Orr-ful monetary policy blunder

So what, on reflection, are we to make of  the  Reserve  Bank  governor  Adrian  Orr last week slashing the  official  cash rate  by half a percentage point to  a record  low  of  1%?

After  all,  just  the day  before  Orr made his   historic move, Finance Minister   Grant  Robertson  was  delivering  assurances  to  anyone  who might be listening  of  the  NZ  economy’s “solid fundamentals” as  he celebrated the unemployment rate falling to 3.9%.

Why then would   investment  guru Brian  Gaynor  label the  OCR  cut  as a “bizarre  decision”?

In his  widely read column in the  Saturday  edition of the NZ Herald, Gaynor wrote:

“Populist politicians and central bank governors  are obsessed with taking  measures to avoid any  form of  economic slowdown. This  approach, which has been strongly  influenced  by Trump’s  pressure on the US Federal Reserve Board, is unorthodox, because  expansions and  slowdowns  are  an  integral  part of the  business  cycle. The  weird  0.5%  rate  cut…means  our Reserve Bank has more limited options if NZ is  confronted  by a  serious  recession”.