Inflation

The Living Wage doesn’t work

“Focus on improving skills and paying what a job is worth is best way for businesses to recognise their responsibility to the communities in which they operate – not paying a ‘subjective and artificial’ Living Wage.”, writes Michael Barnett, head of the Auckland Chamber of Commerce.

All businesses, including councils hire on merit, so paying a higher rate without asking for better performance is not sound business practice. Private sector businesses would soon go out of business, but councils take the easy option – they simply pass the cost on to rate payers.

“That’s why the ‘living wage’ is not good business, or good for business. Most businesses recognise this. “It is of concern, however, that Auckland Council and others are leading the charge on this flawed concept – they don’t face up to ‘real business’ price-cost pressures like other businesses do, and instead are expedient in exploiting the revenue they receive from ratepayers,” said Mr Barnett.

The $10,000 difference between the just under $32,000/year minimum wage and new $42,000/year living wage is a significant extra ‘social’ cost to make up.

Of course, the Auckland Chamber recognises that low wages can make it difficult for workers and their families. But Government welfare policies exist to address this, including the setting of a ‘minimum’ wage to prevent unscrupulous employers paying too little. Read more »

Liam Dann needs to take a chill pill. Even low inflation spells gloom and doom for this muppet

Sometimes the Media party needs to replace their shit-tinted glasses.

Liam Dann is a case in point, thinking that low inflation spells gloom and doom.

Tomorrow fresh statistics will tell us that the cost of living is barely rising at all.

The Consumer Price Index for the September quarter is forecast to show inflation has fallen in the past three months and is only just above zero for the year .

Most economists are picking it will come in at 0.1 or 0.2 per cent for the year to September 30 – down from 0.4 per cent in the year to June 30.

That’s dangerously close to deflation and it will be treated as bad news by economists.

But many New Zealanders will be feel that the low inflation story doesn’t stack up with their daily experience.   Read more »

Aaaand more good news

A booming economy, a budget surplus, low unemployment…can it get any better?

Yes it can…food prices have fallen.

New Zealand food prices declined in September, impacted by cheaper bananas, lamb and chicken.

Food prices fell a seasonally adjusted 0.2 per cent in September following a 1.3 per cent jump in August, Statistics New Zealand said. On an unadjusted basis, food prices slid 0.9 per cent in the month.

Fruit and vegetable prices fell 5.1 per cent in September after jumping 5.8 per cent in August. Vegetable prices dropped 5.5 per cent with seasonally lower prices for tomatoes, capsicum and cucumber.

Fruit prices declined 4.4 per cent as bananas slid 13 per cent to $3.05/kg after spiking 22 per cent in August to a record high of $3.51/kg due to a supply shortage.   Read more »

Prices are stable; some people say that’s bad

The NZ Herald has a business editor who would like you to know why low inflation is terrible.

– Low inflation remains one the biggest risks facing the global economy although it seems like a subtle problem relative to the political turmoil that has dominated the past few months.

– New Zealand’s remained stuck at 0.4 per cent, in the year to the June 2016 quarter. That’s below Reserve Bank expectations of 0.6 per cent. And well below its target band of one to three per cent and ideal average mid-point of to per cent.

– When prices are stagnant so are wages. Business margins are squeezed by price pressure and the focus goes on costs rather than expansion.

– Low inflation can also prompt consumers to delay spending on big ticket items on the expectation that prices will fall further. This further squeezes businesses.

– Lower than expected inflation puts more pressure on the Reserve Bank to cut interest rates to stimulate the economy and bring the value of the kiwi dollar down.

That might be good news for mortgage holders but really interest rate cuts aren’t a sign of a strong economy. For many older savers this is bad news. Read more »

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Are the Reserve Bank people up to the job?

via www.assuredproperty.co.nz

via www.assuredproperty.co.nz

If you hired people to do a job and after six years they are still not hitting targets – worse, they admit they don’t understand what’s going on – would you not review their ongoing employment?

The Reserve Bank is trying to understand why inflation has consistently undershot expectations over the past six years, which it sees as a strategic priority this year, assistant governor John McDermott says.

In a speech on Wednesday explaining how the central bank arrives at policy decisions, Mr McDermott told the Manawatu Chamber of Commerce that the bank’s forecasting team hadn’t predicted the persistent weakness in inflation or the persistent strength in the New Zealand dollar.

It wasn’t alone in being baffled by protracted low inflation and had been shifting resources to boost its understanding.

Read more »

Green Party want inflation to be high so that mortgages will cost more

The Green party wants people with mortgages to keep on paying higher interest rates.

Another interest rate cut will pour fuel on the housing price fire, the Greens say.

There’s speculation the Reserve Bank will again cut the official cash rate after a report released today showed inflation rose just 0.2 percent in the first quarter of this year.

In March the bank cut the OCR to a record low 2.25 percent.

Its next review is on April 28.

The Greens say the consumer price index hides the way the housing crisis is hitting peoples’ pockets.

Read more »

Government excise tax increase mostly responsible for CPI rise

The government, in ratcheting up tobacco taxes has caused the CPI to increase…albeit buy a tiny amount.

Inflation has edged up as higher cigarette prices offset cheaper fuel.

The Consumers Price Index (CPI) rose 0.2 percent in the three months ending March, reversing the previous quarter’s 0.5 percent decline. That pushed up the annual rate to 0.4 percent.

Statistics New Zealand consumer price manager Matt Haigh said prices for cigarettes, food, rents and newly built houses rose in the March quarter, while petrol and air fares fell.

Cigarettes and tobacco jumped 9.4 percent following an increase in excise duty in January.

“The average price of a pack of 25 cigarettes was $28.79 in the March 2016 quarter, more than double the price from six years ago when annual 10 percent excise tax increases were introduced,” Mr Haigh said.

Taking out cigarettes and tobacco, inflation actually fell 0.1 percent in the quarter.  Read more »

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Rockstar economy: Hey Mr DJ, put another record on

Things are going really quite badly for the Labour Party. The economy is doing fine.

The New Zealand economy is forecast to grow by three percent this year, despite weaker dairy prices.

The New Zealand Institute of Economic Research (NZIER) says it expects annual GDP growth to recover to around three percent in 2016, and it will average 2.5 percent for the following years.

The NZIER says growth picked up late last year thanks to strong population growth, construction and tourism.

It predicts they will be “the key driving forces behind solid growth for the next few years”.

But the NZIER’s senior economist Christina Leung is warning that: “The current volatility in global financial markets is a reminder of how quickly sentiment can change. Financial markets are adjusting to the realisation that the Federal Reserve will gradually normalise interest rates in the world’s largest economy. This has raised fears about the durability of the recovery in the global economy”.

The NZIER says that despite the pick-up in economic activity, inflation in New Zealand remains very weak. This is due in large part to lower petrol prices.

“However, lower petrol prices have also reduced costs for households and businesses and encouraged spending. The decline in petrol prices from a year ago represents a $200 annual boost to each household’s wallets. Although wage growth is subdued, it is still outpacing consumer price inflation, resulting in real wage growth for many households.”

Economic growth and real wage growth due to increased spending power. Hands up those who think Matt McCarten is bashing his head on his desk yelling, “How long can this last?”  Read more »

Subdued inflation

Mayor Len Brown

Mayor Len Brown

Annual inflation is expected to bottom out at 0.2%.   That’s 0.2% for the whole year.   And guess what is largely responsible for that small increase?

The consumers price index fell to 0.2 percent in the third quarter from 0.4 percent three months earlier, according to a Reuters survey.

The annual rate may also have slowed to 0.2 percent, the figures scheduled for release on Friday are expected to show. Read more »

Reserve Bank told off for micromanaging mortgage market – and failing

The Reserve Bank copped a kicking from treasury for their failed meddling in the mortgage market.

Not only was it unnecessary it also failed.

The Reserve Bank has been told to stick to its knitting by the Treasury, with officials warning that rules on mortgage borrowing need to be within its mandate.

In documents released on Thursday evening, Treasury officials also warned that the original loan to value restrictions put in place by the Reserve Bank may have led to more activity by property investors. It follows numerous claims that the rules have hurt first time buyers.

In a briefing for Secretary to the Treasury Gabriel Makhlouf, officials said they agreed with the Reserve Bank that a pick-up on the Auckland housing market “could potentially pose a threat to financial stability” in the coming years.

“However, Treasury has been engaging with the RBNZ to suggest that although we accept that house price changes can have macroeconomic implications, the RBNZ’s mandate is focused on promoting financial stability, and therefore the policy proposals should be reframed to focus more clearly on reducing systemic risk rather than asset prices.”

The comments appear to suggest the Reserve Bank is being warned that it may be overstepping its role over financial stability, a claim made in recent months by Michael Reddell, a senior adviser to the bank who was made redundant earlier this year.   Read more »