Latest / Best of Business / Michael Reddell: Former Reserve Bank senior economist discusses the latest inflation numbers

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Michael Reddell: Former Reserve Bank senior economist discusses the latest inflation numbers · Best of Business

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  Speaker 2: After they're welcome to the program. So finally we can
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  Speaker 2: see the effect of the Middle East war. Inflation has
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  Speaker 2: hit a two year high of four point one percent.
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  Speaker 2: That CPI rise was mostly driven by increases in the
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  Speaker 2: price of fuel. That's war diesel up seventy one percent,
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  Speaker 2: But power and housing, which is internal inflation or what
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  Speaker 2: they like to call tradable inflation, and we get a
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  Speaker 2: little bit confused, have gone up as well. Anyway, you're
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  Speaker 2: probably experiencing all this yourself, and people are talking about
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  Speaker 2: the cost of living crisis. So Michael Riddell is a
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  Speaker 2: former Reserve Bank senior economist and he joins me right
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  Speaker 2: now afternoon to here. Michael, that's know, So is this
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  Speaker 2: what you expected or was it worse or better than
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  Speaker 2: you might have thought?
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  Speaker 3: I think it was pretty much on consensus. You know,
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  Speaker 3: the range of economists and forecasters were all in that
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  Speaker 3: sort of three point nine to four point one sort
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  Speaker 3: of range.
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  Speaker 2: The politicians have now got into the blame game, with
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  Speaker 2: Nicola Withers saying well, it's all Donald Trump's fault and
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  Speaker 2: Labor saying no, it's all Nicola Willis's fault. So what
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  Speaker 2: would you say.
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  Speaker 3: I'd probably be closer than Nicola Willis on this occasion.
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  Speaker 3: I mean, clearly, there's nothing that New Zealand politicians or
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  Speaker 3: the Reserve Bank could do anything do about the diesel
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  Speaker 3: prices or the petrol prices. The underlying issues that are
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  Speaker 3: around inflation are the responsibility of the Reserve Bank. Ultimately,
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  Speaker 3: they're not politicians at all. And it is true that
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  Speaker 3: probably inflation, even if you strip out the petrol prices,
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  Speaker 3: it's not quite as low as we'd like it to be,
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  Speaker 3: and that's part of the reason why the Reserve Bank
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  Speaker 3: made their first ACUR increased last month.
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  Speaker 2: So what do you need to do now?
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  Speaker 3: In your opinion, I don't think there's any urgency at
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  Speaker 3: all about raising rates from here. If you strip out
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  Speaker 3: all sorts of things that central banks can't do much
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  Speaker 3: about food and energy, and government charges. Inflation is only
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  Speaker 3: just over the mid point of the target range. Now
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  Speaker 3: that's not what people are experiencing out there, but that's
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  Speaker 3: what the Reserve Bank should be focusing on. They want
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  Speaker 3: to focus on where that inflation is going to be
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  Speaker 3: in twelve or eighteen months time. Because manshial policy moves
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  Speaker 3: today take a while to have their impact, so I
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  Speaker 3: think they probably will need to raise rates a little
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  Speaker 3: more at some stage later in the year. I don't
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  Speaker 3: think there's any urgency about that at all.
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  Speaker 2: Okay, now here's the question, do we actually have the
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  Speaker 2: right system in place for handling the inflation the metric
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  Speaker 2: of just the inflation figure then affecting what we do
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  Speaker 2: with our interest rates. It's a very simplistic thing, but
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  Speaker 2: of course economies are very complex, and people have complained
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  Speaker 2: that we keep on booming and busting on a roller
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  Speaker 2: coaster of macroeconomic policy. Is there a better way of
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  Speaker 2: actuallyulating our real position?
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  Speaker 3: Probably not, Although it's fair to say that central banks
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  Speaker 3: don't pay a lot of attention to the headline inflation numbers,
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  Speaker 3: so they and economists enormous a matter of effort and
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  Speaker 3: trying to unpick the numbers and get what we call
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  Speaker 3: core or trend inflation, and to see how that's evolving
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  Speaker 3: through time. But it's a bit like the famous line
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  Speaker 3: about democracy. You know, it's not a perfect system. It's
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  Speaker 3: just better than any of the alternatives that have been tried.
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  Speaker 3: And inflation targeting is a bit like that as well.
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  Speaker 3: It's definitely not perfect. Economies do cycle up them down,
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  Speaker 3: but there isn't really a better alternative on option on
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  Speaker 3: at this stage.
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  Speaker 2: But if we suddenly crank up the interest rates, we'll
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  Speaker 2: even crank them up slowly. This nascent economic recovery in
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  Speaker 2: could get squashed as well, which is bad for the country.
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  Speaker 3: It could, but that's not likely. So if you look
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  Speaker 3: at the reserve banks forecasts, what they will say is
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  Speaker 3: we will raise interest rates a bit. That will slow
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  Speaker 3: the recovery a little bit, but you know, maybe it'll
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  Speaker 3: slow it from two and a half to two point
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  Speaker 3: two percent. But those are the sorts of orders of
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  Speaker 3: magnature that you're thinking about. What you really don't want
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  Speaker 3: is the mess that we got into five years ago.
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  Speaker 3: Right the Reserve Bank let inflation get away and then
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  Speaker 3: they had to ramp up interstrates by five hundred basis
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  Speaker 3: points in really only about eighteen months that did squash
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  Speaker 3: the economy, but precisely because it had been grossly overheated.
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  Speaker 3: What they should have been doing is moving earlier. If
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  Speaker 3: they'd moved earlier, they wouldn't have needed to have moved
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  Speaker 3: so much, and we would have had a smoother run
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  Speaker 3: through the last few years.
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  Speaker 2: It's a difficult business, and I thank you for your insight.
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  Speaker 2: That's Michael Riddell, former Reserve Bank senior economists.
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