If you listen to Chris Hipkins, you could imagine the answer to inflation is simple: just give people more money. Having raised the statutory minimum wage a few weeks ago, he announced benefit increases this week to match the inflation rate.
He is going to give me an extra$100 a fortnight that I don’t need. I doubt many age beneficiaries need it. Most of us are mortgage-free, many have rental property or private funds, our commitments are stable, our expenses flexible, we could help get inflation down.
We are also old enough to know inflation is not a “cost of living crisis” when incomes have been rising too. We received very high pay increases in the 1970s as a response to price rises resulting from oil shocks. It didn’t stop inflation.
This bout of inflation is more wage-driven than any we have known. Incomes began rising rapidly when pandemic lockdowns were lifted. People had enjoyed staying home and were re-assessing their work commitments and rewards.
Just about every second person you meet seems to have changed jobs last year. Employers are having to offer more money to fill vacancies or retain staff. Over the year, average ordinary time earnings increased by 7.2 per cent, exactly the same as the year’s increase in the consumer price index.
Naturally people noticed the higher prices and forgot about their wage rise. We were spending as normal all day and didn’t realise we were being “hurt”, “squeezed” and “suffering” until we turned on the evening news.
The cost of living crisis was the great non-story of 2022. I thought we might have heard the last of it after the Reserve Bank Governor, Adrian Orr, delivered a dose of reality to a press conference in November.
“Think harder about your spending,” he said to New Zealand. “Think about saving rather than consuming. I know that’s a strange concept. Just cool the jets.”
Right now a strong government would be telling us we have to tighten our belts until we get inflation down to 2-3 per cent again, and it would be tightening its own belt well ahead of a Budget still two months away.
It would be telling schoolteachers, who are striking as I write, there is no question of wage increases in the government sector for the time being, let alone the inflation figure the teachers’ unions are claiming. (And it might add that after all the education their pupils have lost over the past two years, the teachers should be ashamed of their action today.)
It would be telling superannuitants their annual wage-linked increase cannot happen this year and that until inflation is under control any cost-of-living support will be strictly needs-tested.
But we don’t have a strong government, we have a very weak one, weaker than it was under Jacinda Ardern, weaker than any government I can remember. It is running scared of the election in November.
Week by week it is ditching any policies that might possibly cost some votes, including good policies like unemployment insurance and, this week, lower speed limits on highways that were not designed for 100km/h.
It is dropping good people like Rob Campbell and, this week, Stuart Nash, whose criticism of a soft judicial sentence deserved a prime ministerial rebuke, not his removal from the police portfolio.
Prime Minister Chris Hipkins and Stuart Nash. Photo / George Heard
Nash didn’t criticise the judge publicly, he asked the Police Commissioner privately if police would appeal. Police did not. Big deal.
The election is more than six months away. That is a long time to have a weak government when inflation needs to be tackled hard. This one is sitting down with the teachers’ unions now. They know it will give in. Then it will be nurses’ turn.
It would not be the first time teachers and nurses have taken successful strike action under this Government but last time their claims were pressed in an economy with low inflation and a budget surplus.
Hipkins is not fighting inflation, he is leaving that task entirely to the Reserve Bank. Monetary policy, as we discovered in the 1980s, is necessary to defeat inflation but not sufficient once the disease has taken hold.
Higher interest rates have managed to stop inflation at around 7 per cent, however, it appears to be stuck there. The January indicator was at 7.4 per cent and February’s will be higher after Cyclone Gabrielle.
The fact is, we should be having a cost of living crisis but we are not. A cost of living crisis is a little pain for the lasting gains of a currency holding its value, reliable price signals for productive investments and non-inflationary growth.
