Russell Bell: Inflation will be here for a while and businesses need to plan for that

Factors contributing to inflation, such as Russia's invasion of Ukraine, don't look to end anytime soon, writes Russell Bell. Photo / 123RF

OPINION

So now that we have it confirmed at the highest level that a cost-of-living crisis exists, it is pleasing to see that there has been a small reduction in the excise tax associated with fuel (although the flow through to road user charges and diesel remains in the works as I write this).

Although it needs to be recognised that inflation impacts businesses and creates secondary and tertiary inflationary cycles (as businesses pass on their own cost increases to consumers).

Last week the line that this inflationary cycle is only temporary was being yielded like a shield in a Viking documentary - but that seems to have now subsided.

This is in much the same way as the disappearance of other statements such as "other countries need vaccinations more than we do" and "we want to protect the gains we have won [in relation to keeping Covid out]".

The reason for this is that situations change and reality sets in.

It is also one thing to attribute your challenges to things you cannot control, and this has relevance for inflation, but it is quite another thing to try to avoid the fact that our internal inflation (non-tradeables) was 5.3 per cent in the year to the December 2021 quarter.

So, while it was appreciated (except if you are like me and filled your tank on Sunday) the short-term three-month respite may not be enough and so, again, as a business owner (and just as we did with Covid) we need to ask, "what's the plan?" or more specifically "do we have a plan?."

These are really important questions when you have inflation impacting current and future input costs for raw materials and getting products to market and there is potential that the flow-through will occur for some time.

But let's look at the external impacts for a minute or two.

To plan effectively you need to fully understand the environment you are operating in and the potential consequences of what is going on around you.

For example, let's look at the cause of skyrocketing oil and fuel costs and the warmongering stylings of one Vladimir Putin.

If you think that the invasion of Ukraine is a new thing or that it will be over quickly, I think I have some bad news for you.

The most likely scenario is that the war for control of Ukraine will lumber on for months if not years.

Sure, it could transition from an invasion to an occupation, but it is highly unlikely that such a change will be quick, smooth, and seamless.

And then, even if there is a quick resolution, do we really think that supply of the vast resources in Ukraine and restoration of the Russian economy will occur as quickly as missiles were first fired and the first sanctions were imposed?

Likewise, it is entirely possible that worldwide inflation and the collapse of financial and commodity markets is part of the Russian leader's overall calculus.

So, unfortunately, the current challenges are here for at least the next little while.

There is not enough column room here to explore all of the ins, outs and what-have-yous that must be considered to guide New Zealand's economy (described by one commentator as being 'akin to a lifeboat tied to a super tanker in high seas') through the next few months if not years.

But internal inflation can and should be controlled in a better way than it is now – otherwise the 'double whammy' will hit all sectors hard.

One thing is for sure, a three-month holiday from some fuel excise tax will only go so far and to emerge intact, business will require more (and longer-term) initiatives plus the cancellation of Covid restrictions as well as the delay of initiatives such as the redundancy insurance scheme.