Many businesses think the raising of the official cash rate by the Reserve Bank was precipitate, what with inflation running below the mid point of the bank's target of 1 to 3 per cent.
After all, the exchange rate is running well above the 10-year averages against our trading partners such as Australia and the US, which means the prices of many durable goods such as cars and appliances are falling. House prices in Auckland have flattened off, and are no longer a source of inflation.
The power companies too were promising no increases for the next three years though they are now reneging, with only small price rises.
But there is still a lot of productive capacity available in the economy, especially from imports and despite projected skills shortages and the wage pressures resulting from them.
"Our Reserve Bank must act on the hard information it has before it which is record terms of trade and the rebuild of Christchurch, which though vital for New Zealand is hardly an overwhelming inflationary force on the country as a whole."
Furthermore we are told monetary policy is targeted at influencing behaviour a year or so down the track, with today's headline inflation rate having only a minor bearing on how the bank sees things over the medium-term.
But the current rise in interest rates will curb spending power almost right away since most mortgages these days are either floating or due to come off fixed rates expiring this year. Clearly the Reserve Bank can see trends emerging not visible to the rest of us. Or they could be responding to an expectation that the US, Europe and Japan will shortly stop printing vast swathes of money.
The practice has helped keep the world awash with money and the cost of borrowing it far from normal.
But it's an open question when the printing of money will stop, though when it does, the impact on the NZ dollar could be sudden and see inflation jump. Who knows when it will end.
Our Reserve Bank must act on the hard information it has before it which is record terms of trade and the rebuild of Christchurch, which though vital for New Zealand is hardly an overwhelming inflationary force on the country as a whole.
The bank may see capacity constraints looming, upward price pressures resulting from the rapid rise in net migration, high rural land values reflecting our high terms of trade, and rising labour costs.
Like the bank, businesses must deal with the hand being played. They must deal with a higher cost of borrowing with the expectation of higher costs to come, and lower returns from export receipts as the exchange rate remains high. Business expectations and confidence will take a hit.
"The time is 23 years overdue for serious work on co-ordinating monetary and fiscal policy. The idea that monetary policy needs mates dates back at least to 1991. But nothing much seems to be fixed in place to build this much needed relationship. Leadership is required so who is up for the job?"
The right reaction is to call for the Government to recognise it needs to contribute to controlling inflation through fiscal policies.
Monetary policy is not the only route to reducing inflation. The Government knows if it wants the economy to keep growing it needs interest rates to be competitive, not leading the OECD.
The Government knows its fiscal and regulatory policies can have a profound effect on inflation - by better managing the supply side.
Business knows it knows it. We need to keep the reform process going forward at pace. Here are some thoughts to help.
Though we have made some gains recently we still have an appalling savings record. More work is needed to encourage personal savings while maintaining disposable income. Cutting taxes could assist with this if, for example, some tax was diverted into savings. Any tax shortfall could be made up as the recovery continues and the economy grows. Is it time for KiwiSaver to be made compulsory?
More work is needed to reduce friction in the energy market.
We need to increase our national and business investment in innovation to boost productivity and investment in productive enterprise. The building industry is crying out for more innovation.
More local government reform is required to help with things like approving building consents, as well as opportunities for local government amalgamation.
Business wants more labour market reform to eliminate industry-specific labour bottlenecks.
The time is 23 years overdue for serious work on co-ordinating monetary and fiscal policy. The idea that monetary policy needs mates dates back at least to 1991. But nothing much seems to be fixed in place to build this much needed relationship. Leadership is required so who is up for the job?
Kim Campbell is chief executive of the Employers and Manufacturers Association.