Earlier this week, in The Truth about Prices in New Zealand, (on Evening Report, and on Scoop), I showed how the Consumers Price Index (CPI) is a lagging measure of inflation, and that the Producers Price Index (and the use of six-monthly rather than annual data) gives more timely information about turning points in inflation.

In this chart I look at the two published components of the CPI: inflation in the “tradable” and “non-tradable” sectors. And, because the CPI is a lagging measure, I have used the best presentation for historical reflection rather than for timely headlines. (This measure is annual, and it compares whole 12-month periods with each previous whole 12-month period. The latest data point in the chart matches to 31 March 2025, which is at the centre of the year-ending 30 September 2025.)

Consumer prices are retail prices, whereas producer prices are wholesale prices. Tradable CPI inflation mainly represents the retail prices of traded goods; goods New Zealand mainly exports and goods New Zealand mainly imports. Much of their pricing includes the markups of domestic retail outlets, domestic transport, and domestic customisation and packaging of imported manufactures and foodstuffs.

The non-tradable sector is mainly domestic services, utilities, and construction. Sellers of these services and goods do not compete with foreign suppliers.

In addition, the chart shows the monetary policy setting of the Official Cash [Interest] Rate; set by the Reserve Bank.

Interpretation

In the 2000s the OCR was set at what was then understood as normal levels, in the order of six percent. The received narrative of the time was that interest rates should be significantly above inflation rates. The achievement of such high real interest rates, then (and globally, not just in New Zealand), was probably the main single cause of the subsequent Global Financial Crisis in 2008. It created an environment in which money was transmitted en masse from borrowers to savers, and the ‘investor-class’ enjoyed ever-increasing demand for financial assets which would supercharge their ‘paper’ returns. In those years there was nothing like the degree of debt-phobia that exists today; leverage was the name of the game.

Despite the dubious anti-inflationary narrative which justified these high interest rate settings, high interest rates did not force countries’ domestic inflation rates towards the target rate of two percent. Due to globalised competition, the wholesale price inflation of traded goods remained low; even negative at times. In addition, for individual countries such as New Zealand, exchange rate appreciation also served to keep ‘tradable inflation’ very low. Indeed it was those high interest rates which facilitated the currency appreciations of ‘commodity currencies’ such as the New Zealand dollar.

Nevertheless, by the late 2000s, high ‘wealth effects’ – including (indeed especially) among indebted home owners – saw world commodity prices soar, leading to high inflation in the tradable sector despite commodity currency appreciations.

The Global Financial Crisis of 2008 and 2009 saw the collapse of a number of financial asset prices worldwide. Central banks cut interest rates dramatically, to revive a failing and flailing world economy. New Zealand’s annual inflation fell to below two percent. And it stayed below two percent for more than a decade. While non-tradable inflation sat between two and three percent, tradable inflation brought the overall CPI to one percent and even less (especially in 2015, ten years ago). (Note that the 2011 inflation ‘spike’ in New Zealand was due to the increase in the rate of Goods and Services Tax; GST.)

Interest rates in New Zealand were slashed to one percent in 2019, in the belief that that change would induce an upwards movement in the rate of inflation; and in the full knowledge that – if such monetary policy changes were to be effective – there would be a time lag of at least one year between the policy and the outcome.

Inflation did increase in 2021, though it would be foolish to attribute much of that to reductions in the OCR. Reductions on the OCR from 2015 had had minimal if any impact on inflation. And we know that 2021 and 2022 were very trying times indeed in the world’s supply chains, with pandemic and war. The supply chains quickly adjusted however.

Tradable inflation – even for a lagging measure such as the CPI – clearly turned downwards in 2022. And was plummeting in 2023. The steep rise in interest rates in 2022 could not have been the cause of the substantial tradable disinflation in retail prices; a falling inflation which began about the same time as the monetary policy squeeze.

Those increases in the Official Cash Rate almost certainly had an impact on non-tradable inflation, however. But not in a good way! Just as OCR settings between five and six percent in the early 2000s seem to have held non-tradable inflation at high above-target levels, so also do they seem to have held non-tradable prices in New Zealand in 2024 (and, based on recent quarterly data, continuing to have such an impact in 2025) at distress-inducing above-target levels.

The cost-of-living crisis since the National-led government took office is both the direct effect of the counterproductively high interest rates, and the laggard high non-tradables CPI-inflation which has extended well into 2025.

The real agenda for high interest rates would appear to be to recreate the early 2000s’ financial environment, whereby interest rates were well above inflation, and the elites of New Zealand and elsewhere were embarking on their ultimately destructive journey of inflating paper-wealth.

______________

Keith Rankin (keith at rankin dot nz), trained as an economic historian, is a retired lecturer in Economics and Statistics. He lives in Auckland, New Zealand.

The first chart shows annual price increases in New Zealand for businesses (PPI: Producers Price Index) and consumers (CPI: Consumers Price Index), since 1999. We note that the latest CPI datapoint is for the third quarter of 2025, meaning that it’s centred on mid-August. The most recent PPI data is for the second quarter of 2025, meaning that it’s centred on mid-May.

For the whole period, the first important points to note are that the PPI is more sensitive to changing influences on prices than the CPI, and that the PPI tends to lead the CPI. Indeed, annual CPI inflation is a lagging measure of price change; meaning that it’s a poor measure to base policy decisions on.

The other key point to note is the unusually long lag of the CPI after 2022. Using the more sensitive and timely PPI measure of price inflation, we see that inflation in New Zealand troughed in 2023, and that, using the ‘outputs’ PPI, annual inflation in New Zealand was bang-on the two percent policy target at the time of the 2023 general election.

Despite the claims of our Prime Minister that he inherited “seven percent inflation” from the previous Labour government, in the two years since the election, actual inflation (based on the more sensitive PPI) has been rising.

It is very clear that there was a double ‘price spike’ in 2021 and 2022, periods exactly corresponding to the disruptions to global supply chains caused first by the Covid19 pandemic and secondly by the Russia-Ukraine war. Commodity price increases (PPI-inputs) fell almost to one-percent once those global supply disruptions were resolved. After that, the main source of ‘cost-of-living’ increases – suggested by the CPI lag in 2024 – was panicked and counterproductive domestic policy measures.

Historically, we note that, at the onset of the 2008 Global Financial Crisis, inflation in New Zealand was far worse than anyone realised at the time. We also note that, while the 2011 ‘spike’ in CPI-inflation was due mainly to the increase in the GST rate, there was also a spike in producer price inflation at that time. Normally the amplitude of PPI-inflation is greater than for CPI-inflation; because of GST, this amplitude difference did not happen.

Best leading measure of price variation: biannual price change

The most-timely measure of price variation is the quarterly change of the PPI [inputs]. However, quarterly measures are notoriously ‘noisy’, so the first reliable measure of price variation is the six-monthly [ie biannual] change in prices. The measure here takes six months (the two most recent quarters, averaged) compared to the previous six months.

The second and third charts clearly show both the annual and annualised biannual rates of PPI-inflation. The chart clearly shows how the six-monthly (biannual) inflation rate reveals the key inflation turning points first. By the August 2023 release of the PPI data, it was evident that – by the first available measure of prices – inflation in the first half of 2023 was below two percent. Yet, in election year, the Labour Government never mentioned this very favourable piece of economic news! Why was the actual data not being discussed? Presumably because the truth conflicted with the narrative about inflation; the narrative which New Zealand society succumbed to and was cowered by. Part of the problem is the time-poor (and sometimes credulous) media having been, in effect, trained to follow certain statistical indicators but not others.

These charts also plot the Official Cash Rate (OCR), the principal (though typically misplaced) policy lever to push-back on inflation and deflation. They show that anti-inflation policy commenced late in 2021, and peaked in 2023 and 2024. Thus, the ‘anti-inflation’ policy was persevered with well-after the leading indicators had shown that the inflation problem had disappeared.

The fourth chart shows the annual and annualised biannual rates of increase of consumer prices, again showing the OCR as well. Once again, even though the CPI is a lagging price-level indicator, a proper look at the CPI data shows that CPI-inflation was falling markedly in 2023, and that there was no case for anti-inflation policy in late 2023.

The explanation for the unusually long lag of the CPI (compared to the PPI) lies in the fact that the perseverance of anti-inflation policy itself created an ongoing ‘cost-of-living crisis’. If we go back to the first chart shown, it is the long lag in CPI inflation in late 2023 and in 2024 that is in fact the essence of the ‘cost-of-living crisis’. Rather than the crisis being cured by the contractionary monetary policy settings (of the OCR), that extended CPI lag was caused by the anti-inflation policy.

The fifth chart goes back to the PPI-inflation, using the ‘outputs’ measure of business prices, as in the third chart. This chart shows the OCR settings shifted by 18-months, to simulate an 18-month lag. The reason for this is that we are told that monetary policy takes at least a year – with Reserve Bank research in the late 1980s claiming as much as five years – before monetary policy ‘does its work’. If 18 months is the correct lag between policy and outcome, then we should see upturns in the OCR coinciding with downturns in inflation; and downturns in the OCR coinciding with upturns in inflation.

Instead, considering the two years from mid-2023, we see the very opposite, the upturn of the OCR almost exactly coinciding with the upturn of business inflation. We know that the short inflation spike of 2021 and 2022 was caused by global supply-chain disruptions; this kind of causation is probably true of some other inflation spikes. Also exchange rate fluctuations contribute to spikes in price variation. If we look at the late 2010s, we see falling interest rates accompanying falling rates of price increase; contra to the policy narrative. In the early 2010s we see fluctuating inflation while interest rates were essentially unchanging. In the late 2000s, we see interest rate increases matching inflation increases; again, contra to the policymakers’ narrative.

The conventional neoliberal narrative about inflation is that there is a substantial lag in policy effectiveness, and that inflation is principally driven by expectations of inflation. In this narrative, the inflation data should not be ‘spiky’ at all; rather, once set in, inflation supposedly establishes its own momentum or inertia. The PPI data clearly refutes this ‘momentum’ narrative; inflation is not driven by expectations arising from immediate past inflation. And the alleged momentum in CPI-inflation in New Zealand in 2024 is clearly false; rather there was a lag in CPI-disinflation caused by interest rates being too high; not too low. (Disinflation is falling inflation, whereas deflation is falling prices.)

Accepted reasons for an OCR-increase to PPI-outcome lag include the fact that business loans – like home loans – are typically set at fixed interest rates, for say two or three years. In the case of a falling OCR, however, businesses may quickly repay (or break) high interest loans and refinance as quickly as possible with the new low interest rates. So, policy reductions in the OCR are likely to affect outcomes more quickly than increases in the OCR.

It is looking as if anti-inflation policy actually achieves a mix of neutral and pro-inflationary outcomes. My suspicion is that anti-inflation policy is substantially pro-inflationary – counterproductive – with a lag of 15-24 months; and anti-deflation policy is actually pro-deflationary, with a shorter lag.

It is likely that the lag from anti-deflation policy (as in these years: 2001, 2008, 2015, 2019; refer third chart) to consequential deflation is quite short, in large part because the commencement of disinflation commonly precedes the policy. (Like trying to end a war that’s already ending.)

2026 and 2027 will be interesting because the longer outcome lag from high interest rates in 2024 and the shorter outcome lag from falling interest rates in 2025 suggests a wait until later in 2026 before there are marked falls in PPI-inflation, and early 2027 before marked falls in CPI-inflation.

There are at least two disruptors, however, given the global environment in flux. First is the 2025 American-led haphazard disruption to the already disrupted global economy, including the redirection of global supply-chains in favour of military goods and services. Second, for New Zealand, there is the ever-present possibility of a domestic financial crisis which would see a rapid fall in the value of the New Zealand dollar and therefore a 2027 spike in high rather than low inflation.

*******

Keith Rankin (keith at rankin dot nz), trained as an economic historian, is a retired lecturer in Economics and Statistics. He lives in Auckland, New Zealand.

The above chart shows CPI inflation in New Zealand in historical context. The chart shows (in orange) the present policy target band of one to three percent annual inflation. And it shows the ‘home-ownership’ component of the CPI.

The chart looks different to most charts of CPI inflation, because it uses seasonally-adjusted price comparisons over a six-month period, rather than over a 12-month period. These biannual price increases are then ‘annualised’, so that the numbers are scaled to the annual percentages we are familiar with.

The making of this chart was triggered by me reading a NZ Listener editorial ‘House of the rising sum’, from 28 November 2020. The context is that some economists were arguing, even then, that the Reserve Bank should have started raising interest rates in the latter part of 2020.

The Reserve Bank has mandates to manipulate interest rates and monetary quanta in order to keep CPI inflation within the orange band. (The Bank is also mandated to protect the integrity of the financial system, and this overriding provision was in play in 2020, as it was in 2008/09.)

The mantra goes that if the calculated CPI inflation rate is below the orange band then the Bank should cut interest rates, and that if above the orange band then the Bank should raise interest rates. (The mantra is basically a policy-vestige of the gold standard era – 1870s to 1914, 1926-1931 – which was revived in the monetarist 1980s and applied to a world with flexible exchange rates.)

The chart shows that, based on the inflation-interest mantra, late in 2020 (at the time of the Listenereditorial; see the first blue dot in the chart) that interest rates should not have been raised (and should perhaps have been cut, from 0.25% to 0% or 0.1%). There is certainly no mandate in favour of pursuing an anti-inflation policy at that time.

The chart also shows that CPI inflation in 2024 is within the orange band. (Refer to the second blue dot.) This means the Bank should be in an interest-rate cutting phase. Yet the bank hasn’t yet done a single cut. This failure to act in accordance with its mandate should be the subject of a major political conversation today.

Looking more broadly, we see that CPI inflation is typically ‘spikey’ in nature; quick to rise and quick to fall. Some of the biggest spikes are associated with the introduction of GST (Goods and Services Tax) in 1986/87 and the two occasions in which the GST rate was increased (1989, 2010).

The spikey nature of CPI inflation gives lie to the new-monetarist notion that inflation is driven mainly by expectations of inflation. If that was true, unacceptably high inflation rates would plateau until those expectations were bludgeoned out of our psyches. (Yes, even the textbooks say that sound disinflationary monetary policy requires “credible” interventions, meaning that the bludgeon has to be seen to be being used, and that it will continue to be used until our alleged-beliefs conform with our required-beliefs. It’s like a credible torture policy, common in autocratic societies.)

The only times there were something close to inflationary plateaux in New Zealand were in the 1970s and the Korean War period of the early 1950s. The more recent plateau was essentially over in 1984, with two subsequent spikes being principally due to the short-lived devaluation of 1984, and the introduction of GST in 1986.

The introduction of the Reserve Bank Act, which formalised the present practice of monetary policy, took place well after the end of the 1970s’ inflation plateau. It was a policy to address a problem that did not exist then; though some will argue that the plateau of inflation did not end until after 1986. (The argument is that inflation would have been high in 1986 even if GST had not been introduced. I don’t think the data supports that interpretation; the 1986/87 spike looks to me like a classic tax spike.)

Two more points to note. The deflationary plateau of the early 1930s is the Great Depression. Deflation is a much bigger problem than inflation, and policy-making in 2020 appropriately had that message in mind.

The second point is that the purple line shows the urban real-estate price booms since 1984. In the 1980s and 1990s we see house price inflation spikes coinciding with general CPI spikes, although 1986/87 was also a tax-spike. In the 2000s we see (after the initial spike) a house price boom coinciding with a period of tight monetary policy – rising Bank-set interest rates and rising CPI inflation.

In the 2010s we see a similar house price boom coinciding with a period of unusually low interest rates. This tells us that neither high nor low interest rates are the dominant driver of real-estate inflation; something else is going on. The suggestion in the later 2010s was that the something-else was immigration. Yet immigration certainly was not the cause of the 2021 house-price spike. Mass immigration came after that spike.

The most recent house-price-spike most likely does have something to do with easy monetary policy lasting for nearly a year after the first blue dot. But it didn’t have to be that way. The Bank created extra money, contingency money; the course the pandemic was taking was highly uncertain. Newly created money was parked in the commercial banks instead of in the government’s coffers. Because the government was unwilling to borrow that money – even when the interest rates were near to zero – the money ended up sitting on the balance sheets of the commercial banks. The banks naturally found that the most profitable outlet was to push that money through the commercial banks into the housing market; increased business lending was neither possible nor appropriate at that time of great global uncertainty. Asking commercial banks to park money is like asking a fox to guard chickens.

CPI inflation spikes are a fact of normal economic life. Global events create price shocks. Normally the market-economy resolves these shocks quite quickly; and that’s what most of us expect to happen despite a few academic and bank economists telling us we have inflationary expectations whenever prices spike.

Autocratic monetary policy – a policy mantra through which central authorities override normal market-based resolutions – undermines normal market responses, and raises inflation expectations while claiming to be lowering them. High interest policies act as a tax on producers – precarious workers and precarious businesses – for the benefit of the top wealth decile, the ten-percenters. Far too much of our political conversation has been dominated by ten-percenters and their ‘west-wing’ world views; these are the people who refuse to contemplate that the interest rate inflation mantra might be flawed policy.

*******

Keith Rankin (keith at rankin dot nz), trained as an economic historian, is a retired lecturer in Economics and Statistics. He lives in Auckland, New Zealand.

The first chart above challenges the received view that inflation in New Zealand remains stubbornly high, and that it is therefore appropriate for the Reserve Bank’s official cash rate (OCR) to be held for at least a few more months at its damagingly high level of 5.5%.

The second chart suggests that inflation in New Zealand was already dead in 2023, and that – inasmuch as there was ever an argument for high interest rate monetary policies – those high interest rates should have come down sharply during 2023.

The first chart uses a measure of CPI inflation appropriate to the problem at hand. When the CPI data was released on 17 July, the only figure really mentioned was the 3.3% headline annual figure. This was calculated by comparing prices in April-June 2024 with prices in April-June 2023. The problem is that most of that 3.3% occurred in 2023, not 2024. The first chart above uses a CPI inflation measure that compares April-June 2024 to October-December 2023. (Then it annualises – ie scales up that measure – to make it fit the convention that both interest and inflation rates should be quoted in the form of annual rates.)

The actual increase in prices during 2024 so far is 1.0%, which annualises to 2.1%. The monetary policy target band for CPI inflation is between one percent and three percent, with a midpoint of two percent. The CPI inflation data now sits right in the centre-point of that target range. The CPI inflation rate is now precisely on target, so there should be no anti-inflation policy in place.

Further, in the first three months of 2024 – as the first chart shows – the CPI inflation rate was 2.25%. This means that the Reserve Bank, focussing on CPI inflation, should have reduced the OCR in April. Yet it still has not done so, despite this month reviewing its interest rate.

The first chart shows a number of other things, as well. The bout of so-called inflation starting early in 2021 was in fact a cost-escalation arising from the pandemic disruption to global supply chains. By early 2022 those cost increases had been largely factored in by the world markets; there was no epidemic of inflation expectations, which was the pretext for the policy ratcheting-up of interest rates. Unfortunately, in 2022 there was another supply-cost shock, in the form of the Russia-Ukraine war. Again, no epidemic of inflationary expectations; just a second ‘spike’ in the CPI chart.

Looking at the whole of the twenty-first century, we see that CPI-inflation has been mainly a set of ‘spikes’, and not processes that ever needed the economic equivalent of chemotherapy. (The spike early in 2011 was the increase in the GST rate from 12.5% to 15%.) Further, and despite the alleged concerns of the monetary hawks during the 2010s, the historically low interest rates of that decade did not ignite an inflationary process.

The first chart reveals just one inflationary process, from 2004 to 2008 (albeit with a dip early in 2007, due to a sharp appreciation of the New Zealand dollar); a process that seems to have been exacerbated by rather than relieved by the then policy of raising interest rates.

The first chart also shows something that is very important to note. It shows a perceived norm, from 2000 to 2008, of interest rates being persistently three percentage points above the CPI inflation rate. Much needs to be said about that false normality, but not here. What should be noted here though is that this 2000-2008 pattern of substantial ‘real interest rates’ – a pattern also prevalent in other western capitalist countries – was the real cause of the 2008/09 Global Financial Crisis. The strong suggestion is that monetary-policy hawks favour high interest rates for reasons other than inflation suppression.

(We should also note that the 2000 to 2008 situation occurred under the watch of a ‘progressive’ Labour government. The Left, at least since 1984, has been particularly weak in critiquing interest rate policies most associated with Margaret Thatcher and her virulent battle against the working class in 1980s’ United Kingdom.)

The second chart uses two other measures of inflation – arguably better measures than the CPI – and also a slightly different version of the CPI measure used in the first chart.

The other two measures may be called ‘PPI inflation’, where PPI means ‘producers price index’. Probably the PPI Outputs index is the best measure of prices that we have; the inputs’ measure is probably too sensitive to movements in the New Zealand dollar exchange rate.

We note that the PPI Outputs’ measure shows clearly that the pandemic effects and the Ukraine war effects were nothing more than ‘cost spikes’; and were not at all indicative of inflation processes. We also note that the PPI inflation measures show that the 2004 to 2008 period was a more dramatic inflationary process than the CPI reveals. And we note that the period 2017 to 2019 was one of a degree of PPI inflation that didn’t feed into the CPI. From the first chart, it looks like the main reason that the CPI did not rise in those three years was because interest rates were cut to then record lows. The way to suppress inflation then was to reduce interest rates, not to raise them.

Technical Note

When \there is a new quarterly CPI or PPI release, there are five annualised measures of inflation that can be calculated.

One. The most up-to-date measure is to just take the increase over the previous three months, and then to annualise it (ie scale it up). For the CPI, in this measure, the result for the June 2024 quarter is 1.6% and for the March 2024 quarter it is 2.6%. The PPI outputs measure for March 2024, on this basis, is 3.5%; indeed the PPI shows that prices have bottomed out, and are now on the rise.

Two. The measure I used in the first table gives an annualised CPI inflation rate of 2.1% for June 2024 and 2.25% for March 2024. The PPI Outputs measure, on this calculation, is 3.2%.

Three. There is another six-monthly measure, which is the one used in the second chart. It’s a bit less sensitive to the most recent datapoint, but also less likely to be distorted by any ‘noisy’ or ‘rogue’ elements in any particular datapoint. This measure averages the two most recent datapoints (in this case the two 2024 data items) and compares with an average of the previous two datapoints. It yields CPI inflation measures of 2.16% (June) and 3.41% (March). This PPI Outputs measure for March 2024 is 3.14%. (Economic historians prefer less noisy measures, whereas financial markets and journalists should be focussing on the latest news.)

These measures, based on quarterly or six-monthly change, may be subject to ‘seasonal noise’. But generally the CPI is much less subject to substantial seasonal influences than is production, trade or employment data.

Four. There are also two annual measures. One, the noisier one, is the measure most commonly quoted in the media, and appears to be the measure most used by policymakers. It takes the most recent three-monthly datapoint (ie April to June 2024) and compares it with the data for the same three months of the previous year. This is ‘noisy’ because it is over-influenced by ‘one-off’ events in that part of either last year or this year. It is not subject to any averaging out.

For this ‘official measure’, the most recent CPI inflation rate is 3.3% and the March CPI rate was 4.0%. The PPI outputs rate for the March quarter was 2.6%, within the monetary policy target range of between 1% and 3%. Inflation was nothing like the problem in 2023 that it was presented as being; though the cost of living was (and still is) a problem, because the major cost problem that affects many people – directly or indirectly – is high interest rates (which are excluded from CPI or PPI inflation measures).

Five. The final measure of CPI or PPI inflation is the least noisy, and best for economic historians. Its disadvantage is that it’s the least current measure. It is the method that’s applied to production data to calculate the economic growth rate. This method averages the four most recent quarters of data, and compares that average with the average for the previous four quarters.

Under this historical final measure, the most recent CPI inflation rate is 4.4% and the previous rate was 5.1%. The most recent (March 2024) PPI Outputs inflation rate is 2.4%. This last figure is highly significant. It will tell discerning future historians that the supposed inflation problem of 2022 was already over early in 2023.

*******

Keith Rankin (keith at rankin dot nz), trained as an economic historian, is a retired lecturer in Economics and Statistics. He lives in Auckland, New Zealand.

Parliament has ended for another term, shutting down ahead of the Aotearoa New Zealand election campaign with a debate where many focused on attacking their political opponents.

Labour Party leader and Prime Minister Chris Hipkins warned New Zealanders: “We can continue to move forward under Labour, or we can face a coalition of cuts, chaos, and fear: A National/ACT/New Zealand First government that would be one of the most inexperienced and untested in our history.”

Parliament typically rises at the end of a term with an adjournment debate, and Thursday’s seemed to confirm the coming election on October 14 would be full of negative campaigning.

Here is a brief summary of the political leaders’ speeches:

Chris Hipkins (Labour):

Labour’s leader and incumbent Prime Minister Chris Hipkins launched into the closing adjournment debate reflecting on the eventful past six years. He said his own tenure in the role had not broken that mould, with the Auckland floods sweeping in just two days after he was sworn in, followed by Cyclone Gabrielle.

“Ours is a government that has been forged through fire. Every challenge that has been thrown our way, we have risen to that,” he said.

He said Labour had achieved a lot, but there was more to do — and much at stake in the coming election.

“We can continue to move forward under Labour, or we can face a coalition of cuts, chaos, and fear: A National/ACT/New Zealand First government that would be one of the most inexperienced and untested in our history, a government who want to wind the clock back on all of the progress that we are making.”

He praised Finance Minister Grant Robertson’s handling of the economy, highlighting a 6 percent larger economy than before the covid-19 pandemic, record low unemployment, and wages “growing faster under our government than inflation”.

He soon returned to attacking political opponents, however.

“Now is not the time to turn back. Now is not the time to stoke the inflationary fires with unfunded tax cuts as the members opposite promised, and it is not a time to turn our backs on talent by introducing a talent tax,” he said, referring to National’s plan to increase levies on visas.

“National wants to turn the clock backwards; we want to keep moving forward.”

He finished by saying Labour had a positive vision for New Zealand, before his final parting words: “and I wave goodbye to Michael Woodhouse, too, because he’s guaranteed not to be here after the election”.

Christopher Luxon (National):

The National leader said Hipkins’ speech should be one of apology, “to the parents and the kids who actually have been let down by an education system …to all the people who have waited for endless times and hours in hospital emergency departments … to all the victims of ram raids in dairies and superettes … to all the people that are lying awake at night worried about how they’re going to make their payments and keep their house.”

He continued with the requisite thanks such speeches so often sprinkle on officials, staff, supporters and workers before thanking the man he had been criticising.

“I do want to thank, in particular, the Prime Minister Chris Hipkins for his services to the National Party, because he rode in very triumphantly in February, and he announced that he was sweeping away everything that Jacinda Ardern stood for-especially kindness. But I have to say it turned out it was all words and no action, because, as we expected, he just carried on doing more of the same: Excessive, addicted government spending.

He turned to the slew of Labour personnel problems of the past year and more, likening the government to a car with the wheels falling off; the Greens were “in this rally too, they’re on their e-bikes, and they’re pedalling along the Wellington cycle lanes,” while Te Pāti Māori were “in their waka, but, sadly, they’re not the party of collaboration that they once were”.

“Then there are the ACT folk. They’re off in their pink van, and it’s been wonderful. They’re travelling the countryside, and David’s reading Mandela’s Long Walk to Freedom, which is a good read, as you well know, Mr Speaker.”

He lavished praise on his own team, singling out deputy Nicola Willis, then closed by promising National was “ready to govern, we are sorted, we are united, we have the talent, we have the energy, we have the ideas, we have the diversity to take this country forward”.

David Seymour (ACT):

ACT’s leader also honed in on his political opponents, targeting Labour’s polling.

“It’s been a long three years in this Chamber and it has been characterised by one fact that lays bare what has happened, and that is the fact that the Labour Party, in Roy Morgan, polled 26 percent. That means that half the people who voted for Labour at the last election have abandoned voting for Labour in three years. The question that they must be asking themselves is why that is.”

“I think the reason that we have so much change and support-Labour have lost half of their supporters in the last three years because, frankly, never has so much been promised to so many and yet so little actually delivered … New Zealanders overwhelmingly say this country is going in the wrong direction, and they also will tell you that their number one concern is the cost of living. That is Grant Robertson’s epitaph.”

He targeted housing, debt, inflation, victimisation, and child poverty before targeting the government for taking “a divisive approach to almost every single issue”.

“If you take the example of vaccination. Now, I’m a person who says that vaccination was safe and effective, yet by using ostracism as a tool to try and increase vaccination levels this government has eroded social cohesion and divided New Zealanders when they didn’t need to,” he said.

“New Zealand have had enough of that style of politics. They’ve had enough of Chris Hipkins going negative. They’ve had enough of the misinformation.”

He finished by saying the choice for New Zealanders now was not between swapping “Chris for Chris and red for blue”, but “we’ll actually deliver what we promise, we’ll cut waste, we’ll end racial division, and we’ll get the politics out of the classroom. Those aren’t just policies, those are values that we all share.”

James Shaw (Greens):

The Green co-leader took his own opening shot at Seymour, as “the leader of ‘New New Zealand First’”.

“Mr Seymour must be feeling quite grumpy right now, because last term he worked so hard to get rid of Winston Peters so that this term he could become Winston Peters, and now Winston Peters is calling and he wants his Horcrux back because that blackened shard of a soul can only animate the body of one populist authoritarian at once.”

He turned the hose on both major parties in one statement, saying it was odd National was proposing more new taxes than Labour while the Greens were promising bigger tax cuts than National. He criticised National over its plan to spend the funds from the Emissions Trading Scheme, before turning to climate change overall as — unusually — a source of positivity.

“Our greenhouse gas emissions in Aotearoa are falling, and that is because — and it is only because — with the Green Party in government with Labour, we have prioritised that work every single day.”

But positivity did not last long.

“Under the last National government, one in 100 new cars sold in this country was an electric vehicle. Last June, it was one in two … and National want to cancel all of that so that they can have an election year bribe.”

Rawiri Waititi (Te Pāti Māori):

The Pāti Māori leader Rawiri Waititi began with a fairy tale.

“It seems like this side of the House can find a grain of salt in a sugar factory. I just wanted to say, as I heard the story about Goldilocks — Mama Bear, Papa Bear, Baby Bear — I tell you, it’s been very difficult to sit next to a polar bear and a gummy bear, and it’s been quite hard to contain the grizzly bear in me.”

He spoke in te reo Māori before giving a speech which — unlike the other leaders — focused exclusively on his own party’s promises.

“We are the only movement that will fight for our people,” he said.

“What does an Aotearoa hou look like? It looks like how we would treat you on the marae. We will welcome you. We will feed you. We will house you. We will protect you. We will educate you. We will care you. We will love you.”

“Te Pāti Māori is a movement that leaves no one behind, whether you are tangata whenua or a tangata Tiriti, tangata hauā, takatāpui, wāhine, tāne, rangatahi, mokopuna — you are whānau.”

He spoke of the need to reduce poverty and homelessness, before making the second of two references to his suspension from Parliament this week, then said it was time to “believe in ourselves to be proud, to be magic, and to believe in your mana”.

“I am proud of you all, I am proud of our movement, and I’m proud to head into this campaign, doing what we said we would do.”

This article is republished under a community partnership agreement with RNZ.

Article by AsiaPacificReport.nz

Tuesday, February 7, at 2pm. That’s when New Zealand’s new Prime Minister Chris Hipkins’ parliamentary year begins and he faces National leader Christopher Luxon in the debating chamber for the first question time of 2023.

He needs to “Win the House”, as the saying goes. That means getting the better of the other side, and Hipkins has to show his caucus that he is up to it.

Hipkins is a vastly experienced parliamentarian, but there is nothing like being in the hot seat directly facing the leader of the opposition.

He can be expected to take it to Luxon and ACT leader David Seymour more aggressively than Jacinda Ardern did, he is more of a “take no prisoners” politician than she was and he needs to get some hits in early on.

Hipkins has had a great start with two opinion polls showing Labour has regained the ground it lost to National.

The 1News Kantar poll showed Labour up five points to 38 percent and National down one point to 37 percent.

Newshub’s Reid Research poll had Labour up 5.7 points to 38 percent and National down 4.1 points to 36.6 percent.

Hipkins slightly ahead
In the preferred prime minister stakes, Hipkins was slightly ahead of Luxon in both polls.

Stuff‘s political editor Luke Malpass said the polls showed what no Labour figures dared to consider a fortnight ago — that the party might have better prospects under a leader other than Jacinda Ardern.

“Hipkins, it now appears, could be that person,” he said.

“In other words, by the time Ardern left she might have been a drag on the party vote.”

Luxon dismissed the poll results, saying nothing had changed.

“It’s the same government, and a new leader who can’t deliver,” he said. “It’s going to be an incredibly tight race.”

The poll details, and what the results would mean in terms of seats if an election was held now, are on RNZ’s website.

Labour’s new champion
After settling in to his debating chamber role as Labour’s new champion, Hipkins has to get his next big agenda item off the blocks — ditching policies and programmes that are in the way of his pledge to totally focus on “bread and butter” issues that affect people, which means the cost of living.

This process was started by Ardern at the end of last year and Hipkins needs to get it done and dusted because there’s sure to be the usual cries of “U-turn, U-turn”.

Although Ardern and Hipkins have explained it as necessary to the new focus on dealing with inflation and the cost of living crisis, there Is also an obvious political need in election year.

Labour wants to get rid of liabilities, policies and programmes that are causing trouble and are easy targets for the opposition.

Hipkins needs what MPs call clear air to explain and implement policies Labour hopes will reset the party’s direction, entrench the lead over National and ACT, and deliver a platform for the election campaign.

The new prime minister may be in his honeymoon period but the media knows he has to deliver.

“He will have to show there is more on the tin than just a new sticker, and in pretty short order,” said Malpass.

“It won’t be enough to just chuck the odd media merger and dank old bits of legislation over the side: It will have to be replaced by some actions on the ‘bread and butter’ issues Chris Hipkins says he is concerned about.”

Plagued by troubles
The New Zealand Herald’s political editor Claire Trevett said Hipkins’ job was to convince voters that Labour was focused “on the various troubles plaguing them now — from potholes to hip ops to the price of bread”.

“The talk is one thing, the delivery is another. Hipkins has no real option but to deliver.”

There’s been speculation about which policies and programmes will get the chop or be put on the slow track, and Stuff published a list with the top three being the RNZ/TVNZ merger, the Income Insurance Scheme (which National calls a jobs tax) and Auckland Light Rail.

It said other lesser known projects could join the list.

Hipkins must also deal with Three Waters, which has given the government more problems than anything else.

That’s more difficult because the legislation has been passed, but Hipkins has acknowledged he has to do something about it.

“We are going to look closely at the Three Waters programme,” he told Trevett in an interview. “There’s no question there has to be change. I don’t think we can just sit back and say ‘this is not our problem, this is a council problem’.

“I don’t think that would be responsible. But we also need to bring people along with us and what we are doing.”

Policy clear-out
When it comes to the policy clear-out, Hipkins has much more freedom than Ardern would have had.

She would have faced ferocious opposition attacks for dumping policies she had supported, her words would have been thrown back at her.

But Hipkins is a new prime minister, doing things his way, just as Ardern told him when she said “you must do you”. She was giving him free rein to do it his way.

Did she know Labour was heading in the wrong direction under her leadership, and that it wouldn’t win the next election unless there was drastic change?

One commentator who thinks so is Matthew Hooton.

Writing in the Herald, Hooton said Ardern so badly wanted her government to win a third term that she was prepared to step down.

“Labour’s masterful transition was carefully planned before Christmas by Ardern and her closest allies, Grant Robertson and Chris Hipkins, and flawlessly executed,” he said.

Capturing the initiative
“Political strategists spend every December working out how to capture the initiative in January, especially in election year. None has ever succeeded like Labour over the last week.”

Luxon hasn’t had a good run-up to the new parliamentary year.

Inevitably, he’s been eclipsed by Hipkins simply because he is the new prime minister but when Luxon has been able to get into the media he might have wished he hadn’t.

“National strategists seem dumbstruck,” Hooton said in his article. “Christopher Luxon was more incoherent than usual trying to explain where he stands on co-governance, the Māori seats, and whether women politicians receive worse abuse than males, pleasing neither the liberal nor conservative wings of his party.”

Stuff’s Andrea Vance said Luxon had actually helped ease Hipkins into the job “by being more mediocre than usual”.

“Somehow Luxon — whose one job last week was to stay on message — managed to drive down a co-governance cul-de-sac at`Rātana, and then spend the rest of the week doing bunny-hop u-turns to get out of it,” she said.

“And how did he manage to piss off women, again? The correct answer was ‘yes’, Christopher. Female politicians patently face more abuse than men.”

Abuse of women
She was referring to Luxon responding to a question about whether women politicians suffered more abuse than men by saying he wasn’t sure.

When Hipkins takes his seat in Parliament on Tuesday he’ll have his revamped front bench alongside him.

The cabinet reshuffle, as RNZ reported, means some of the government’s most contentious portfolios will have a fresh face.

One of the most interesting facets was Hipkins’ decision to appoint Michael Wood as Minister for Auckland.

Hipkins explained the need to “get Auckland pumping” after a difficult couple of years, but there’s a political imperative behind it as well which the Herald’s Trevett saw.

“It is aimed as a pre-emptive counter to the inevitable attacks from Auckland-based opposition leaders such as Christopher Luxon and David Seymour that the Wellington-based Hipkins is a beltway creation and out of touch with Auckland’s concerns,” she said.

“It sends a signal that Hipkins has his eye on Auckland and knows its importance.”

Peter Wilson is a life member of Parliament’s press gallery, 22 years as NZPA’s political editor and seven as parliamentary bureau chief for NZ Newswire. This article is republished under a community partnership agreement with RNZ.

Article by AsiaPacificReport.nz

Prime Minister Chris Hipkins has put the “bread and butter” issue of inflation at the top of his government’s agenda for Aotearoa New Zealand, saying today’s figures confirm that is the right approach.

Opposition leader Christopher Luxon continues to cast the government as having done nothing about the cost of living, but Hipkins argues the government’s actions are making a difference.

Annual inflation numbers for the quarter out from Stats NZ today were unchanged at 7.2 percent, roughly in line with expectations.

There are signs inflation may have peaked, and some supermarkets are expecting drops in fruit and vegetable prices in coming weeks, but rate rises and recession are still expected.

Economists say there is unlikely to be much respite from rising costs this year.

Speaking in his first media briefing as prime minister after chairing Cabinet, Hipkins said the work on reprioritising policy to tackle the issue had “started in earnest”.

“We will be reining in some of our plans, putting them on a slower track, giving us more room to move and greater capacity to focus on the immediate priority issues facing New Zealand, particularly the cost-of-living pressures that have been caused by the global economic situation.”

Not unusual
He said the inflation numbers from today were not unusual in comparison to other global economies — but the government would continue to work to reduce it.

“Our overall rate of inflation: 7.2 percent here in New Zealand, 7.8 percent in Australia, 10.5 percent in the United Kingdom, the OECD average is 10.3 percent, the European Union is 11.1 percent,” he said.

“The Treasury is forecasting real government consumption will fall by about 8.2 percent over the next couple of years which they say indicates that fiscal policy is supporting monetary policy in dampening inflationary pressures — but there’s more to do and the fight must and will continue.

“New Zealand is not immune to those international pressures and they will continue to have an impact on our rate of inflation.”

Luxon was earlier visiting a budgeting service in Papakura, Auckland, and led his comments to reporters afterwards with a familiar litany of criticism, saying those using the service were the same people using foodbanks up and down the country.

“Again a third quarter of inflation sitting at 7.2 percent or thereabouts. It just speaks to a government that is causing huge pain and suffering for people because it has no plan and it’s not tackling the underlying issues of inflation,” he said.

“That then leads to higher levels of interest rates. Higher levels of interest rates ultimately then lead us through to a recession and a recession then leads us into unemployment. I see a government that has had no plan to tackle the underlying causes of inflation, and nothing they have done over the last nine months has made a single difference here.”

He was not buying Hipkins’ language about reprioritisation and renewed focus on the economy.

‘It’s just words’
“He can say whatever he wants, it’s just words. The reality is this is a government with Grant Robertson as a Finance Minister over the whole period of this government.

“Nothing’s changed, so the reality is he can say whatever he wants but I find it incredibly cynical that here we are six months, seven months out from an election and all of a sudden we’re miraculously gonna focus on the economy. Give me a break.”

Luxon listed National’s “five-point inflation-fighting plan” as their own solution to the problem:

• Not adding costs to businesses which will be passed on to consumers through higher prices
• Open up immigration settings to grow the productive economy
• Control government spending “incredibly well and tightly as we expect people to do in their household budgets”
• Inflation-adjusted tax thresholds
• Refocus the Reserve Bank solely on inflation

Hipkins argued the government had been doing its part to address the underlying causes, including at the petrol pump and the supermarket, and it was having an impact.

He listed fuel tax cuts, and changes to benefit rates as examples where the government had stepped in, and said while it was too early to see the results of changes to immigration from a month ago, he had heard positive feedback from businesses.

More changes
He said the government would not stop there and would continue to make changes — and May’s budget was not set in stone.

“There is an opportunity for us to make sure that the Budget reflects the priorities that I’ve set out,” he said, while drawing a line between carrying out the policy promises of this term of government — and campaigning for the next.

“In terms of our tax policy for the next election New Zealanders will know it well in advance of the election. I’m not going to announce a tax policy on day one.”

He signalled he would not forget other priorities — highlighting climate change as well as education, health and housing — but all of them were linked to cost-of-living pressures, he said.

“If you look at the inflationary figures today the cost of building a new house is one of the things that’s contributing to that.

“We’ve seen significant population growth and we haven’t built the right number of houses to keep up with that, that’s never going to turn around overnight but we’re making good progress.”

Luxon targeted the closure of the Marsden Point Oil Refinery as one area the government had not thought through the consequences of, however, with shortages of CO2 and Bitumen impacting some sectors of the economy.

Strategic assets
“There are some strategic assets that actually are important to New Zealand and actually in the context of more global uncertainty you want to make sure you’ve got resilience and you’ve got the backup to the backup to the backup.

“I’m used to running risk management scenarios . . . I get it, we want to move out of fossil fuels, but actually at the moment we’ve knocked off our gas sector and now we’re importing what, three times as much Indonesian coal as any year in a National government?”

“The ambition’s easy to state but actually if you don’t think through the detail of it you end up with these consequences that cause us a different set of problems.”

Hipkins certainly has a big job ahead of him in wrangling an inflation juggernaut powered in large part by similar rises in costs overseas.

While he refused to make any commitments on his first day in the job, he was confident New Zealand would soon see the effects.

“New Zealanders will certainly see over the coming weeks and months the evidence of the fact that we’ve made it our number one priority.”

This article is republished under a community partnership agreement with RNZ.

Article by AsiaPacificReport.nz

Incoming Prime Minister Chris Hipkins of Aotearoa New Zealand has signalled tackling the “inflation pandemic” will be a top priority for his cabinet’s slimmed-down work programme.

Hipkins and new Deputy Prime Minister Carmel Sepuloni — the first with a Pasifika heritage — will take the reins on Wednesday, following Jacinda Ardern’s sudden announcement last week she was quitting after a challenging five years in the top role.

It was perhaps the cleanest transfer of power in the Labour Party’s recent history, and a far cry from the post-Helen Clark, pre-Ardern years of infighting and headline-grabbing leadership tussles.

“Jacinda Ardern and I are both absolutely committed to providing strong and stable leadership to New Zealand,” Hipkins told RNZ’s Morning Report today.

“I think that’s what they’ve seen from the Labour government over the past five-and-a-half years, and that’s what they’re going to continue to see.”

While in 2020 Ardern led the party to the most comprehensive victory of any in the MMP era and still leads polls for the most-preferred prime minister, those same polls suggest Labour is on track to lose the election later this year.

With polls also showing the cost of living and inflation are far more important to voters than the likes of Three Waters reform and merging state-owned media entities, Hipkins said it was time to “run the ruler” over the government’s work programme.

Need to focus
“We need to focus in on some of those bread-and-butter issues that New Zealanders are certainly focused on at the moment, including issues like the cost of living, the effects of the ongoing global inflation pandemic that we’re experiencing at the moment.

“We just have to make sure that we’re putting our resources into the things that are going to make the biggest difference and that are the most important.”

Asked if tackling inflation could come in the form of “tax relief” or toning down the Labour government’s rapid increases to the minimum wage, Hipkins said he would not make up policy “on the fly”, but would be careful to make “sure that the policy settings that the government has aren’t going to make the inflationary problem worse”.

But he hinted those on the lowest incomes wouldn’t be a target for reining in inflation, which — as he noted with the phrase “inflation pandemic” — is a global problem.

“People on the lowest incomes often feel the pinch from higher inflation more than most because they don’t have a lot of extra disposable income to meet those additional costs.”

As for public servants, many he said were in pay discussions at present so he could not comment.

Another global issue New Zealand has not been immune to is the worker shortage. Hipkins said he would not “simply rely on immigration as being the only answer” to that particular problem.

“They want more skilled workers, but they also want to know that their sons and daughters, and their classmates and so on, are also going to find productive, gainful employment… I don’t think it’s and either-or…

“We’ve got thousands of young New Zealanders at the moment who aren’t doing anything. We’re going to have to have a bigger focus on making sure we activate that potential labour force, which at the moment isn’t there.”

‘Take a breath’
Asked if the Ardern-led government had moved too fast on social issues, Hipkins said while “worthy and valuable, we can’t always progress them all at the same time” and it was time to “take a breath”.

But he would not say which programmes might be scaled back or scrapped, having yet to meet with his new Cabinet.

Opponents of the Three Waters reforms however are likely to be disappointed – Hipkins saying that will still go ahead.

“Some of the rates increases people could see without further reform in this are could be … thousands of dollars a year extra on their rates if we don’t do something to address this issue. I’m not going to walk away from that.

“But I will run the ruler over what we’re currently proposing to make sure that we’re focused in on the right issues.”

A few articles published over the weekend suggested Hipkins’ political views were to the right of Ardern. On having that put to him, Hipkins said labels like that “don’t mean a lot”.

“I’m a Labour politician. I believe in the role of government to support New Zealanders, to make sure that they have opportunity . . .

“I absolutely believe in the values the Labour Party was founded on, which is that we are here for people who are working hard to get ahead and create a better life for themselves and their families.”

This article is republished under a community partnership agreement with RNZ. 

Article by AsiaPacificReport.nz

Unions in New Caledonia have secured a 4.2 percent increase of the lowest salaries from January 1, 2023.

The concession by the employers’ organisation MEDEF was announced as a large crowd rallied for a general strike outside its offices in Noumea.

According to police, 1500 people had gathered to press their demands while the unions said they mobilised 5000 members.

The unions had sought an across-the-board pay increase of six percent in the private sector to offset the impact of inflation, which in November was 4.4 percent.

The wage hike applies to those earning between the monthly US$1440 minimum pay and those earning up to US$1775.

MEDEF said inflation has hit businesses hard as production costs are rising faster than product prices, in particular with the rise in the cost of energy.

MEDEF said the social partners became aware early on of the negative impact of imported inflation on the purchasing power of New Caledonians.

It said that as early as May it and the unions unanimously and jointly asked the government to hold a conference on wages.

MEDEF said since April there had been proposals for tax reform which combined economic recovery and resetting of net wages.

It said raising wages had therefore always been a key aspect of the planned tax reform.

The government plans to hold a conference next week to discuss reforms in view of the crisis facing public finances.

This article is republished under a community partnership agreement with RNZ. 

Article by AsiaPacificReport.nz

All wars incur economic costs, and not only to the directly belligerent countries. The biggest costs arise when a war becomes a prolonged stalemate. The present war in Ukraine can be characterised, differently, as a Russian Civil War (that’s the Russian view), as ‘just another’ Eastern European conflict that will go away by Christmas, or as a World War.

Civil War?

The civil war characterisation reflects the medium-long-term history of the lands between the Ural mountains and the Scandinavia/Prussia/Hungary/Romania frontier that historically demarks cultural Russia from western Europe. (And we note that Russia undertook an eastward expansion of settlement in the same years that the United States pursued its westward expansion of settlement. There was a Wild East to match the Wild West. As a result, both Russia and USA have realms that extend to the Pacific Ocean.) This civil war characterisation, which highlights comparisons with the United States’ Civil War, is very useful to help us understand the likely duration, outcome, and cost of the present war.

While the US Civil War officially lasted for four years (1861-65), significant echoes remain today. There is a schism in the political geography of the United States, with the fracture line today very much the same line as in those years. Whatever happens in Ukraine this year or this decade, a similar fracture line is likely to remain into the 22nd century at least.

To understand how useful the US Civil War may be in helping us to assess the present war in Ukraine, we have to see it in the terms of the political and economic assumptions of each time; and also as a purely military event, taking out the ‘goodies versus baddies’ sentiment. The passion in 1860s’ America was on the side of the secessionist south, just as it is on the side of Ukraine today. There was not a passionate abolitionist (ie anti-slavery) mass movement in the north, though there was a passionate and politically significant movement. The question of what motivated the working and farming men of the north to fight was not unlike today’s question of what motivates Russian men to fight in Ukraine today.

Abraham Lincoln, like Vladimir Putin, was passionate about ‘the Union’; willing to pay a huge price to reforge their respective political and cultural Unions. Less passionate contemporaries, in both cases, saw regime change as a possible end-of-the-war scenario.

In the United States the war followed a ‘phony war’ stage that lasted through most of 1861, and then descended into a brutal stalemate which lasted until the second half of 1864. Lincoln, elected in November 1860, faced re-election in November 1864. For all money, he would suffer a landslide defeat in 1864; that is, until the military situation turned in his favour (especially the capture of Atlanta) just months before the 1864 election. Fortunes turned, and Lincoln won in a landslide. He was helped by the non-participation of the south in that election. Indeed it would take more than a century before Lincoln’s Republican Party would gain electoral traction in those southern states; and then only when – in the late 20th century – the two parties swapped places. (It was only recently that, in the US, the party of the south became the party of the north; and vice versa.)

Abraham Lincoln’s ’emancipation proclamation’ on 1 January 1863 was a wonderful piece of political theatre, that proved to be a masterstroke that both enabled the abolitionist cause to be fulfilled in the event of a Union victory, and formed an important part of the basis for Lincoln’s subsequent legacy. At the time it had as much impact as Putin would have if, later this year say, he were to declare an end to people-trafficking in Ukraine; Lincoln in 1863 had no practical jurisdiction over the people whom he notionally emancipated.

An important parallel to note is that it was the southern side in the US Civil War that was then most connected to the world economy, and thus it was the loss of the southern economy that incurred the greatest economic costs to the interested European powers. The (southern) Confederacy looked to the United Kingdom and France to provide military support. In the end the military support given to the south was vastly less than hoped for. There was no expectation, in America or Europe, that the European powers would provide assistance to Lincoln and his armies.

The analogy between the Ukraine War and the US Civil War suggests that the present war will most likely be, for years, a costly stalemate. Deutsch Welle, in its ‘To the Point’ (16 July) listing, said: “After capturing large parts of Donbas, will Putin have an appetite for more?” This western perspective makes Putin seem like a Viking raider who has a ‘bit of fun’ in the borderlands, and then withdraws for a short or long while. The idea that Putin, this year, might simply ‘pack up his toys and bring his boys home’ represents a substantial misreading of the motivation of Putin and the many influential Russians who will continue to promote this fight for Russian prestige and territory. Like Lincoln, I don’t see Putin as a quitter. And it’s not clear that, if something happened to Putin – like dying of covid – the war in Ukraine would necessarily fold.

The popular western perspective is that the war in Ukraine will somehow fizzle out after a few more months, and that the costs of the war to the rest of the world will be short-lasting and reversible. A similar view also existed in 1861, in the north of the United States.

World War?

Has World War Three already started? It’s not really a silly question. (Before putting in my two cents worth, I would like to note that I am inclined to agree with those historians who see WW1 and WW2 and a single event with a 21-year interregnum. In that case, that would be the GWW [or GWW1], Great World War, and what we shall call WW3 might prove to be the GWW2 (or GWW3 if we designate the Cold War as a Great World War, as I think we should). We should also note that the timing of the beginning of most wars is subjective. A good case can be made for dating the beginning of WW2 to 1937, with Japan’s invasion of China.)

There is a case that the Cold War should be classed as a ‘World War’. It was a war lasting from July 1945 (with the Soviet Union’s declaration of war against Japan) until the final demise of the Soviet Union in 1991. The hottest components of the Cold War – Korea, Vietnam, Afghanistan – continue to have repercussions today. So do many of the colder components of that war; especially the break-up of the Soviet Union.

(Under this GWW perspective, both GWW1 and GWW2 were nuclear wars. This is because the dropping of atomic bombs on Japan represent both the end of GWW1 and the start of GWW2.)

Like the other world wars, the Cold War split the world into three: indeed, we came to talk about the ‘first world’, the ‘second world’, and the ‘third world’. In some contexts, China was ‘third world’; in other contexts, it was a recalcitrant part of the ‘second [“communist”] world’. Like GWW1, there was an interregnum in the Cold War; the early 1970s, essentially the later years of Richard Nixon, and the short presidency of Gerald Ford. The Cold War – GWW2 – was reheated during the Jimmy Carter presidency, especially due to the influence of cold warrior Zbigniew Brzezinski. 1980 was a particularly belligerent year.

The dramatic economic events of the 1970s were a consequence of both the Cold War; and of a regional war that goes back to biblical times and will probably continue until the end of time, the Arab-Israeli War. The first episode of the ‘Great Inflation’ can be attributed to the Vietnam War, the quintessential hot war of the Cold War. The second ‘stagflationary’ episode of that inflation is usually attributed to the 1973 episode of the Arab-Israeli War, and its consequence for world oil prices; though the political response that pushed the Great Inflation well into the 1980s was as much a result of a form of capitalist ideology – monetarist neoliberalism – that had its origins in the earlier years of the Cold War.

The War in Ukraine has already divided the world into three. Aotearoa New Zealand has unambiguously taken sides as a western non-combatant belligerent. It’s not a simple proxy war between Russia and Greater NATO. Türkiye, a NATO member, has taken a much more ambiguous position than New Zealand has. Even though the fighting, so far, has only taken place on the territory of Ukraine, the costs of the war so far have been substantial. And global. And, as in the first months of World War 2 or the US Civil War, we may have only experienced the ‘phony’ part so far.

This war sets the scene for a new economic crisis that will most likely last until at least 2050. Much was already in place before this Russian war started in 2022 (though some would argue that this war started in 2008 or in 2014). The Covid19 pandemic has revealed how brittle the world economy is, and how easily knowledge gives way to narrative. In particular, the pandemic has revealed how brittle ‘first world’ labour markets are, and how dependent the privileged are on an exploited pool of global labour.

In addition, we have the global environmental crisis, which is about global emissions induced climate change; and much more. Indeed, in order to manage the new climate extremes, we have to burn more fossil fuels than ever; to run our air conditioners, our heaters to manage the cold, and to construct the infrastructure which we need to, among other things, keep out the floodwater. We are in a dangerous positive feedback loop, which means we have to aggravate the crisis in order to mitigate it.

Also, in the west in particular, there have been what might best be called the ‘culture wars’. The result is that, within the west, there are two large politicised groups of people who see their adversary as tantamount to ‘evil’; this wickedness of the other side becomes the corrupted lens which makes it close to impossible to define and discuss the very real crises that humanity both faces and imposes. The latest round of the culture war is the resurfacing of the abortion issue. In the United States today, the culture war does have significant overtones which date back to the Civil War.

The pandemic (presented as a war between man and microbe), the 21st century labour crisis with all its cruelties, the culture wars, and climate change all set the scene. The war in Ukraine – already GWW3 by my reckoning – is the spark that is escalating the present conflict. The latest symptom of escalating warfare is the ‘cost of living’ crisis.

Global Inflation?

We are clearly facing global cost crises; rises in real costs due to pandemic and the political measures taken to deal with it, due to environmental change and its costs (including substantial and largely ineffective bureaucratic costs), rising labour costs arising from the massive disruptions to the pre-2020 globalisation of labour, and now war shortages which so far mainly impact the prices (and availability) of staple foods and fossil fuels. A big part of the problem is that, in the west, there have been no serious attempts to cost the Ukraine War. Instead, there has been the pretence that it will just go away; the equivalent to the ‘over by Christmas’ assumptions made in 1861 and 1914 (and 2003 for that matter).

As well as properly assessing the costs of the war, and of the other crisis, a rational response must be to find reasonably equitable ways to share this cost burden. It would have been so much easier if principled income distribution mechanisms had already been in place prior to this crisis decade. We do expect that, in a war, the direct belligerents will face particularly high costs; but we also understand that, in a world war, all of humanity must bear some of the cost.

Yet, when we see countries’ consumers price indexes rising (so far by no more than an annual ten percent in most western countries), we disembody our minds from the real and rising costs ‘out there’; and we expect our politicians to roll out some kind of magic solution. We want them to magic away real costs; in practice that means we expect them to shift the cost burden to other people, especially people in countries or continents other than our own (such as Africa). We, en masse, still expect the very real and substantial crises of the world to be costless to us in our daily lives. Too many of us still see these crises as akin to dramas that we watch on television; as being like multi-season Netflix drama series.

An inflationary spiral takes place when non-powerless people seek compensation from real costs. (Cost crises are not the only inflationary situation. Macroeconomists tend to follow a one-size-fits-all analysis of inflation, based on ‘excess demand’ rather than on ‘increased cost’. So they, in the role of central bankers, rush to increase costs in the form of higher interest rates; whatever the underlying problem. And once one country does it, others are forced to follow in order to stop their currencies’ exchange rates from falling; depreciating currencies make their countries’ inflation rates higher than the global average.)

The first law of holes is ‘stop digging’. But it’s very hard to stop digging when you are in a ‘race to the bottom’.

*******

Keith Rankin (keith at rankin dot nz), trained as an economic historian, is a retired lecturer in Economics and Statistics. He lives in Auckland, New Zealand.

The big new story in the news cycle – in New Zealand but not only in New Zealand – is the rising ‘cost of living’, which is usually conflated with ‘inflation’. These topics – together and separately – are, like Covid19, devolved to ‘social science’ (macroeconomist in this case) ‘experts’; within the policy-making apparatus and within the newsroom.

In fact, these topics – ‘cost of living’ and inflation, as policy topics – have never been dealt with scientifically; monetary and fiscal policies routinely applied are as unmodern as was bloodletting as a commonly prescribed cure in the pre-modern era of medical ‘science’; as in the era when, routinely, medical interventions on balanced caused more cost than benefit.

Just as we do not yet have anything like a consensus about the causes of and recovery from the Great Depression of the 1930s, we have nothing like a scientific consensus about the causes of and recovery from the Great Inflation of the 1970s. It’s mainly because most ‘experts’ take a textual (akin to religious) approach to these questions, and not a scientific approach.

Cost of Living

It is widely understood that a rise in the cost of living and inflation are the same thing, and that they are caused by wicked people ‘price-gouging’ or (as economists might say) ‘rent-taking’. Or that some foolish or wicked bankers have created too much money, allowing the greedy to gain at the expense of the regular ‘mums and dads’. (We may note that Jacinda Ardern spoke of a ‘wicked perfect storm’, before waving a policy wand in the form of waiving some petrol taxes. On Radio NZ [14 March], economist Eric Crampton, more scientific in his approach than most, tried to explain that these measures were little more than wand-waving, but he didn’t say what the host of The Panel wanted to hear.)

The cost of living is a ‘real’ concept, whereas inflation is a ‘nominal’ (or ‘monetary’) concept.

The present rise in the cost of living arises from a number of real factors which cannot simply be waved away or waived. The most important of these real costs are the pandemic (and related restrictions imposed upon businesses and households), the war in Ukraine (and the related impact on world petrol, wheat and other prices), and climate change (causing droughts and floods).

Because these are real rather than monetary contributors to rising prices, ethical policy measures must be about finding fair ways to allocate the cost burden (such as universal benefits and higher taxes), and about creating more incentives to modify and reduce unsustainable economic demands. Examples of such behaviour-modification incentives would be incentives to travel less, and incentives to travel relatively more by public transport (a policy tick here) and through more sustainable transport modes (such as bicycles).

What is unethical is for one group of people to try to shift the entire burden onto other groups of people; eg people in other countries. We need to realise that all people in the world should bear some of the cost burden of the Ukraine war, while also understanding that the combatant countries will disproportionately bear that burden.

Inflation

This is essentially a nominal concept, often thought to be entirely a monetary concept. Thus, in principle, inflation can be suppressed or exported by monetary means. Inflation is more nuanced, however; and can be regarded, in part, as a real but secondary cost. Another example of a real but secondary cost is pain, which is a physiological symptom of some other cost (trauma), and may indeed be a part of a solution or cure to that trauma. Thus, a fever may be both an indication of infection (a real cost) and a part of the curative process. A pain in the arm after a vaccination is an indication that the vaccine is effectively working to prevent disease.

Pain is also a useful analogy to inflation, in that pain has many causes, and therefore many remedies. Choosing the correct remedy depends on a good scientific diagnosis of the cause of any particular pain. A rising cost of living is an economic pain, and inflation is part of the process of working through that pain.

A good example of a real cost is that of a huge boulder falling from a mountain into a lake below, causing a lot of direct damage to the lake and its ecosystem. (In macroeconomics, this would be called an ‘adverse supply shock’; like a war or a pandemic.)

In addition to the direct damage is the secondary ‘ripple effect’. As such the ripples (waves) represent both additional costs and energy diffusion benefits. The ripples may sink boats and/or flood the lakeshore. Nevertheless, we cannot easily imagine how it would serve any purpose to suppress those ripples; the ripples are a necessary part of how the lake-system returns to a new equilibrium. If we are patient, the ripples will eventually subside; albeit with some permanent ripple-damage to the lakeshore.

The only practical way to suppress the ripples – the ripples being the secondary effect of the initial adverse supply shock – is to generate counter-ripples. The problem is that the cost of generating counter-ripples may be greater than the cost of the ripples; and even if that cost is not greater, the cost-burden of the anti-ripple policy may be more inequitable than the cost-burden of the ripples. Even worse, anti-ripple policies in practice often aggravate the ripples before dispelling them.

We should also note that, following the ripple analogy, neoliberal monetary economists believe that, if unchecked, the ripples will never stop and may indeed accelerate over time. Hence, such economists believe that the ‘ripple-problem’ is much worse than it really is.

Using Deflation Policies to Fight Inflation

Again, we must start by reminding ourselves that inflation is typically a necessary part of the adjustment to a new reality, following a ‘cost of living’ shock; or indeed following a ‘perfect storm’ of cost-of-living shocks. So, the best policies are patience (keeping calm and carrying on), combined with other abovementioned incentives and income distribution measures that facilitate the adjustment process.

What policymakers normally do, instead, is to pursue deflationary policies as counter-inflationary policies. In particular, these are likely to be monetary policies – we expect the central bank (Reserve Bank) to raise interest rates as a one-size-fits-all panacea. In addition, there may be ‘fiscal policies’ – most likely reductions in government spending and reductions in social security payments; maybe, also, tax increases. (Together, these are known as ‘contractionary macroeconomic policies’.) These policies are attempts to reduce aggregate spending to match reductions in aggregate output. They work – inasmuch as they do work – by creating a recession in the ‘medium term’; by intentionally creating a cure worse than the disease. In the ‘short term’ these policies aggravate the ‘cost of living’ problem. Increasing interest rates (and increasing taxes) add to, rather than detract from, the cost burden.

The Rationale for Contractionary Policies

The first part of the rationale is that inflation is understood by macroeconomists as a problem of too much spending or too much money. That is, inflation arising from a real cost of living shock (let alone a ‘wicked perfect storm’) is considered to be an atypical form of inflation. Regardless of this, the conventional contractionary policy – like paracetamol as a cure for pain, or bloodletting as a cure for disease – is embarked upon as a ‘one size fits all’ or ‘one curative elixir solves all’ remedy.

The rationale is that, even if there is not too much money, then, nevertheless, reducing the quantity of money will still counter the problem.

While the argument for contractionary fiscal policy is similar to that for contractionary monetary policy, I will comment in coming paragraphs mainly about contractionary monetary policy. We should note, however, that the fiscal policy argument is one for a direct cut in total spending, and is an argument for reduced ‘demand for money’. And it’s a neoliberal argument, in that it assumes that, when money is scarce, it is better spent in the private sector than in the public sector.

We should also note that, while the monetary policy argument is essentially a closed economy argument – ie a global rather than a national argument – governments are by definition agents of national polities rather than a global polity. (We may also note that big countries like USA and China more closely approximate a ‘closed economy’ than do little countries such as New Zealand.) Nevertheless the most pressing argument – as a political argument rather than a moral argument – is an open economy argument about countries’ exchange rates.

Argument One (the classical argument):

Higher interest rates discourage spending, and reduced spending leads to a recession. In a recession it is very difficult for businesses to raise prices, even if their costs rise. This is a closed-economy ‘global argument’; that rising global interest rates lead to global disinflation (reduced inflation rates) despite rising interest costs. Like ‘mask-wearing’ during covid times, the argument is that the benefit (disinflation) is greater than the higher interest costs faced by businesses and households.

The practical problem – especially in circumstances, like today, following a ‘supply-side’ ‘perfect storm’ – is that you get the worst of both worlds: inflation and recession. In pre-modern times, bloodletting would usually weaken rather than strengthen a sick person.

Argument Two (the open-economy argument):

Following one country’s central bank raising interest rates, ‘investor’ money will flow into that country from other countries. The exchange rate for that country appreciates, and the exchange rates for the other countries depreciate. When a country’s currency appreciates, prices in that country fall, or at least rise more slowly. Raising interest rates in one country exports inflationto other countries.

This is by its very nature an immoral policy. It is immoral to export a problem, knowingly.

And it’s self-defeating. Such interest-rate-raising monetary policies generate a ‘race to the bottom’ (indeed a wicked race to the bottom) because they oblige other countries to counter them with similar interest-raising policies. Otherwise, these other countries find themselves importing inflation in addition to the inflation they already have. (This is Turkey’s problem at present; it tried to reduce rather than raise interest rates, leading to a run on its currency.)

A variation of this argument applies to a world with fixed currency exchange rates. This is the argument as it applied in the years before World War 1, and in the late 1920s and early 1930s (the period of the classic gold standard). A ‘surplus’ country with rising gold reserves should cut its interest rates (to reverse that monetary inflow) while a ‘deficit’ country with falling gold reserves should raise interest rates (to reverse its monetary outflow). These were ‘the rules’. The latter (deficit) countries had no choice but to follow the rules; but the rules were in effect discretionary for the surplus countries. The result was global deflation; and recession or worse.

Argument Two; corollary (the pure monetary argument):

In the gold standard times it was understood that the global price level was regulated by the global gold supply. While the data generally did not conform with this proposition, it seemed too good a story to abandon. In many times – eg the seventeenth and nineteenth centuries – the extra gold was generally hoarded or banked rather than spent. So extra gold had no impact on inflation, and often was coincident with deflation.

Nevertheless, the argument was adapted to national currencies, especially at times – like today – of flexible (‘floating’) exchange rates. And the argument seemed to work, some of the time. If one country kept interest rates low and allowed its money supply to increase, then there would be a resulting and matching fall in its exchange rate. The rate of inflation would match the rate of currency depreciation. This sort of thing used to happen a lot in South America. It did not happen in Switzerland and Denmark, where negative interest rate policies have been in place since 2014. Most importantly, this exchange rate argument is about particular inflations in particular countries, and is not an argument that connects world inflation to falling interest rates or rising money supplies.

The Rational Expectations Argument (essentially a closed economy argument):

This is the argument that was pushed during the ‘monetarist’ decade; the 1980s.

The argument is based on the idea that if everyone believes that a policy will work, then the policy will work. So, if you – as a central banker – believe that other people (including other central bankers) believe that any policy (eg raising interest rates; or making a sacrifice to the gods) will lead to a desired outcome, then it will lead to that desired outcome. This is really, in essence, the same type of argument that justified human sacrifices by priestly authorities in ancient ‘civilisations’; such as the Aztecs of Mexico.

It has become a mantra in the world of central banking and neoliberal economics, that whenever inflation threatens, then central banks should raise interest rates; it works because enough people believe it will work. And a credible central bank will maintain that ‘tight money’ stance, no matter what economic pain ensures; because a central bank’s rigidity is what gives that central bank its credibility. When a central bank is being staunch, then workers will demand smaller wage increases because they believe inflation will be low. And businesses will avoid raising prices, because they believe that their competitors – themselves believing that inflation will be low – will not raise their prices.

Summary

‘Inflation’ and a ‘rising cost of living’ are not the same thing. But both lead to authoritative impulses to raise interest rates and to restrain government spending. In reality, the application of deflation to counter inflation leads to both inflation and deflation in the short term, and to recessions (or worse) in the medium to long term.

*******

Keith Rankin (keith at rankin dot nz), trained as an economic historian, is a retired lecturer in Economics and Statistics. He lives in Auckland, New Zealand.

Recent stories about ‘Cost of Living’ and ‘Inflation’ in New Zealand:

Inflation Nation: Why the cost of living is rising and what we can do about it, NZ Herald, 13 March 2022

Liam Dann: Inflation is now Jacinda Ardern’s biggest problem, NZ Herald, 13 March 2022

‘A wicked, perfect storm’: Govt slashes petrol taxes to tackle soaring prices, Otago Daily Times, 14 March 2022

Inflation Nation: Building supplies, housing, rents – pick the odd one out, NZ Herald, 16 March 2022