The cost of living is no longer just a social and economic problem. It's now a political crisis for Jacinda Ardern's Government.
The Beehive blames the crisis on supply-chain disruption from Covid and Ukraine but, at best, that story is incomplete.
It's true that tradeable goods and services, which are influenced by foreign markets, have risen most, by 8.5 per cent since March last year, the worst result since June 2000.
But non-tradeables, which don't face foreign competition and indicate how domestic demand and supply are affecting prices, have also risen more than previously recorded, by six per cent. And non-tradeable inflation is harder to defeat.
Mixed together, inflation is now 6.9 per cent - the worst since the 1990's political and economic chaos as the fourth Labour Government imploded.
It is now higher than most recently reported by China (1.2 per cent), Australia (3.5), Japan (0.5), Korea (3.8), the Eurozone (4.6), the UK (5.5) and Singapore (4.3). Of our main economic partners, only the US is worse, at eight per cent. It can't all be imported.*
In any case, the Reserve Bank is mandated by Finance Minister Grant Robertson to keep inflation between one and three per cent over the medium term, and future inflation near the two per cent midpoint. Prices are now rising more than three times faster than Robertson says he requires the bank to deliver.
Supply-chain disruptions are real, but the more important culprit is exposed by us being joined on the naughty step by the US, which similarly responded to Covid with massive monetary and fiscal stimuli.
In early 2020, Robertson and Reserve Bank Governor Adrian Orr faced projections that GDP could collapse by 10 per cent, unemployment rise to the same level and inflation go below one per cent. Their response was bold and responsible. Orr slashed the official cash rate (OCR) to 0.25 per cent and began large-scale asset purchases of government bonds, less charitably called printing money. Robertson rolled out his no-questions-asked wage subsidy scheme and other big spending. Officials warned this would cause house prices to rocket but Robertson disagreed.
Even before the end of 2020, the forecasts changed. By December, GDP was picked to fall by less and grow by more, unemployment to remain modest and inflation to rise. Yet Robertson and Orr largely failed to change course.
Inflation now chronic
Robertson's improving fiscal outlook was simply driven by the better-than-feared economic numbers while Orr waited until October 2021, 10 months later, to start raising the OCR. Only this February did it reach its pre-Covid level and it is still only 1.5 per cent.
Only with hindsight could Robertson and Orr know their initial Covid monetary and fiscal stimuli were excessive. But there's less excuse for having unduly prolonged them. They have caused the greatest transfer of wealth from the young and poor to the old and wealthy in New Zealand's history, and allowed inflation to become chronic by infecting the non-tradeables sector.
Even if Beehive strategists were unconcerned about the social and economic effects, they'd better worry about the political damage.
This week's Taxpayers' Union-Curia poll put National-Act ahead of Labour-Green for the first time since Covid, with Te Pāti Māori holding the balance of power. The poll suggested Jacinda Ardern and Christopher Luxon now have the same net favourables, around 10 per cent. Voters remain split on whether the country is heading in the right or wrong direction.
Most importantly, the cost of living has rocketed from nowhere to be voters' biggest concern by far, along with the economy in general. More people now worry about prices and jobs than Covid and health when they were the top concerns. Less than five per cent say Covid is their top concern.
The shift matters because while twice as many voters still trust Labour over National on Covid, National is well ahead on the economy and jobs.
This is reflected in a big change in the voting intentions of women, who pollsters believe are more attuned, on average, to the cost of living crisis than men. For the first time under Ardern's leadership, more women now back National than Labour, and more of National's support now comes from women than from men.
If the Prime Minister's goals around poverty, inequality and housing depend on her defeating inflation, so does her re-election.
With Covid — contrary to what we were told at the time — Ardern did not passively wait for official advice or hide behind working groups. Government papers being prised out of the bureaucracy increasingly show all the important decisions were made by her, often against advice.
It was Ardern who decided to close the border in 2020; Ardern and her department that designed the level system when the Ministry of Health was floundering with a World Health Organisation model; Ardern who finally opted for a Pfizer-only vaccination strategy after officials wasted months on a multi-provider system; Ardern who lost patience with officials opposing rapid antigen tests and demanded they be legalised and ordered at scale; and Ardern who kept managed isolation in place for a few more months as a protection against Omicron when officials said it wasn't justified.
All these decisions are contested - but they demonstrated prime ministerial leadership that not only worked but lay behind Labour's unprecedented 2020 majority.
What Ardern can do
The Prime Minister should be counselled against Muldoonist interventions but there are plenty of bold mainstream measures she could take to slow rising prices.
She might start by telling her ministers to stop making excuses about supply-chain problems and take the crisis as seriously as she did Covid.
To show resolve, she could tell Robertson to scrap the dual mandate the bank has used as an excuse to take its eye off inflation.
With Orr claiming central banks need help from "fiscal authorities", Ardern could then order Robertson to urgently trim fat and slow some of his more elaborate spending plans in next month's Budget.
Robertson has already presided over a 40 per cent increase in government spending with little to show for it. Picking up a suggestion from Act leader David Seymour, he could return the Wellington bureaucracy to its 2017 staffing levels, trimming spending by more than $1.2 billion a year. There would be no reductions in numbers or pay of teachers, police officers, nurses or other front-line workers.
More broadly, the Prime Minister ought to give Environment Minister David Parker and Commerce Minister David Clark a big hurry-up on resource management and competition reform.
The alternative is to leave matters entirely to the Reserve Bank and interest rates. That will make the defeat of inflation more painful for everyone. And it will doom Ardern's chances of a third term.
• Matthew Hooton is an Auckland-based public relations consultant.
*Editor's note: The figures used by Matthew Hooton in this column are derived from the latest available quarterly data (annualised) from the OECD. The periods for China, Korea, the UK and US are taken from Q1 2022. The figures for Japan, Australia and the Eurozone are taken from Q4 2021. For further clarity, the inflation figure in New Zealand during the December quarter was 5.9 per cent. The latest monthly inflation data (annualised) shows an increase of 8.5 per cent in the US, 7 per cent in the UK, 7 per cent in Singapore, and 4.1 per cent in South Korea.