A country’s sports teams, military prowess or natural beauty are often points of pride.
Ahead of today’s consumer price index release, rampant inflation in much of the world and attempts to tackle it sparked debate about who was doing best.
CPI today came in at 6.0 per cent for the year to June 30. That was down from 6.7 per cent the previous quarter and close to economists’ forecasts but still “uncomfortably high”, according to Westpac’s Satish Ranchhod.
If the battle against inflation were a beauty contest, market participants would probably say New Zealand and the United States were winning - or at least not falling off the catwalk, Westpac chief economist Kelly Eckhold said.
Headline US annual inflation figures of about 3 per cent lately have been lower than New Zealand’s, but differences in data collection explained some of that.
“Broadly, the inflation profiles in the US haven’t been that different,” Eckhold added.
“Core inflation in the States is sitting at closer to 4.5 to 5.0 per cent.”
The headline US figure is from America’s Consumer Price Index for All Urban Consumers (CPI) - including food and energy. But if energy prices were removed, the core index was up 0.2 per cent in June and 4.8 per cent over the year.
Economists from ASB, Westpac and ANZ had expected annual inflation in this morning’s Consumers Price Index release to fall below 6 per cent for the first time since December 2021.
And New Zealand lagged behind the US on some major inflation, trade and macroeconomic trends, with the impact of some falling or stabilising prices taking a while to filter through to the South Pacific.
The US had access to comprehensive monthly inflation data, which New Zealand did not. This added a caveat to deciphering annual US inflation stats.
For example, if June 2021 had events causing freakishly high inflation, but each successive month had moderate inflation, the year ending May 31 would have a high headline number - then plunge in stats for the year ending June 30, as the freak month was no longer included.
Plummeting oil and gas prices have influenced inflation in the United States.
“The energy index is down 16.7 per cent for the 12-month period,” Eckhold said.
Apart from the American version of the CPI, analysts in the United States use other measures of inflation, including the Personal Consumption Expenditures Price Index.
That index, measuring annual inflation, fell from 5.0 per cent in February to 3.8 per cent in May.
Headline inflation figures had the UK at 8.7 per cent in May, Germany at 6.4 per cent in June and Australia at 7 per cent for this year’s first quarter.
“A lot of the market participants would say the US and New Zealand have done some of the better jobs,” Eckhold added.
These countries recognised challenges early on and moved interest rates quickly, he said.
In New Zealand, the official cash rate is at 5.5 per cent, and in the US it is 5.25 per cent.
“The jury is still out to see whether that’s going to be enough or not.”
Australia’s central bank had been lackadaisical, or less hawkish, in comparison to its Kiwi and US counterparts. It currently had a lower cash rate and higher headline inflation than New Zealand.
But the UK was faring poorly at tackling inflation, Eckhold said.
“They’ve only just got their interest rates up to 5.0 per cent. You could argue they’re a bit behind the curve.”
ANZ chief economist Sharon Zollner said the UK’s high inflation was due largely to issues with energy supply resulting from Russia’s invasion of Ukraine.
“They were quite exposed to the energy shock. Their central bank, with hindsight, didn’t react aggressively enough.”
She cautioned against reading too much into US inflation figures or suggesting the giant economy was doing much better at taming price increases than New Zealand was.
“Their core inflation is still pretty high. Debate is raging there about whether inflation is beaten or not.”
Zollner also pointed out the US had access to comprehensive monthly data, and said its inflation measures focused less on consumer price indices than New Zealand did.
But she backed the CPI as a reliable measure.
“It’s as good a measure as any. It’s not the be-all and end-all. It’s a reasonable starting point.”
It was a different story, or different two stories, in East Asia’s largest economies.
“Another interesting case is Japan,” Eckhold said. “They’ve actually got inflation in Japan now for the first time in about 30 years.”
Official cash rates were basically zero and the country had very high levels of government debt.
China was experiencing deflation and had several other major economic challenges, Eckhold added.
China’s per capita income, even measured by purchasing power parity, was less than half that in New Zealand, Australia, the US, the UK and the European Union.
China’s political leaders were keen to remedy that. To achieve satisfactory growth, China’s GDP had to expand at least 5 per cent annually, Eckhold said.
But its economy grew just 0.8 per cent in the second quarter, and forecasts were not looking very rosy.
“Youth unemployment in China is 21 per cent. They are extremely concerned about it.”
There were also questions in China about supercharging the country’s underperforming property sector.
“They have this over-valued, over-leveraged property sector,” Eckhold added.
Some commentators have argued China’s situation roughly resembles Japan’s after the 1980s real estate bubble imploded.
But injecting a whole lot of liquidity into the property sector would likely exacerbate debt risk.
“It is a bit of a pickle for them.”
John Weekes is online business editor. He has covered politics, crime, courts and consumer affairs. He rejoined the Herald in 2020, previously working at Stuff and News Regional, Australia.