Fletcher Building chairman Bruce Hassell said the Government's fiscal response to Covid, of printing money at levels we have never seen before, has "woken the inflation beast".
"Taming it may be harder than we realise and it could inflict real pain on business and wider society."
The Warehouse Group chair Joan Withers agreed inflation is inevitable as a result of quantitative easing. "We have been a historic lows for a long time and the current assumptions appear credible.
"Many New Zealanders are highly leveraged with mortgages at unprecedented levels. Increased interest inflation rates will reduce discretionary spending."
Annual inflation in New Zealand jumped to 3.3 per cent year-on-year in the second quarter of 2021, from 1.5 per cent in the previous three-month period — above market expectations of 2.8 per cent.
This was the biggest increase in consumer prices in nearly a decade, off the back of a low base year due to the Covid-19 crisis and the ongoing economic recovery.
All 20 economists in a Sept. 27-30 Reuters poll were unanimous in predicting the Reserve Bank would raise the official cash rate by 25 basis points from a record low to 0.50 per cent at its next policy meeting which took place yesterday.
"A red-hot economy, tight labour market, rising consumer prices, and eye-popping house price growth: when the stars align like this, a rate hike is imminent," a Kiwibank economist told Reuters.
Business leaders are split on whether the current surge in higher inflation rates is baked in or largely transitory.
Some 44 per cent of survey respondents expect higher inflation will be baked in; 31 per cent expect it will be largely transitory and a significant 25 per cent are unsure.
"There is a collection of structural factors that look set to add to the stickiness of inflation," said Cameron Bagrie of Bagrie Economics.
"A partial step back in globalisation; growing size of governments, redistribution-based policy agendas, accelerating wage growth without productivity to match, the costs of climate change ... and on and on."
From an experienced banking chair: "I believe we have seen a fundamental structural change — central banks have over-stimulated the economy and this is going to take some time to wash through."
Z Energy CEO Mike Bennetts was concerned: "I think we are at risk of waves of inflation that compound over a longer duration than previously, e.g. shipping costs increase the cost of imported goods that drive cost of living increases in a short employment market, which drives increase costs for talent, and so on."
A net 80 per cent of survey respondents believe that higher inflation will likely persist at 3 per cent or higher for at least three years.
Said Forsyth Barr's Neil Paviour-Smith: "It's an inevitable consequence of cheap money and supply constraints."
"My sense is that inflation will more likely subsist higher over the next 2-5 years than it did pre-Covid — likely on average in the 3-4 per cent range," predicted Thomas Pippos, chair of Deloitte.
Two-thirds of CEOs — 66 per cent — do not believe inflation is a net positive for the economy. They suggested it will decrease NZ's competitiveness internationally and result in reduced social equity. NZ Initiative chairman Roger Partridge recalled "the 1970s and 1980s taught us that 'inflation is a pathogen'."
"It will rapidly increase the economic divide in the community. Those with assets and those without asset," — a director.
Local Government Funding Agency chair Craig Stobo suggested higher structural inflation is a disaster for those on fixed incomes, for savers in bank deposits, those without homes or financial assets and for businesses without pricing power.
"Beneficiaries of inflation include issuers of nominal debt such as the NZ Government."
A lesser proportion of chief executives — 54 per cent — believe that inflation is also not a net positive for their businesses.
"With rising costs there is not always the ability to pass on such costs to customers due to current rate competitiveness in the industry, thus resulting in lower profitability," — hotelier.
When it comes to the question of taxing increased revenue due to inflation, Governments' motives are not entirely pure.
Some 45 per cent of survey respondents felt rising inflation would not impact the current Government's tax settings; 42 per cent were unsure. Paviour-Smith predicts bracket creep (where wage hikes push income earners into higher tax brackets) will loom as a greater issue for the Government with wage increases at a higher rate than in recent years.
Deloitte's Pippos adds that the Government will be incentivised "not to adjust tax setting as there should be a positive impact on revenue."
Said a banking chair: "Government is most likely to 'bank' the increased revenue resulting from 'bracket creep' and spend it."