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Economic update, April 2023

In brief

  • New Zealand posts the highest food price inflation since 1989, largely driven by costs of fresh produce.
  • Medical staffing shortages said to be causing unsafe working conditions.
  • Property continues to decline, while Reserve Bank interest rates are pushed up yet again.

A bit rich

A new study recently found that despite the constant calls from activists to tax the rich, the wealthiest in New Zealand already pay their fair share. The report concluded the tax system is “fair and equitable”, but acknowledged the need to define income and address the strain on the tax system caused by high government expenditure. This is a taxpayer sponsored study released in anticipation of a government report scheduled for next week. Note that using the words “fair and equitable” to describe the tax system are just as meaningless when used by taxpayers as when used by government.

Food for thought

This week StatsNZ has reported food prices have risen over 12% in the last year, the highest rate of inflation since 1989.

The increase is largely driven by fruit and veggie prices, which, partly due to bad weather, have gone up over 22%. The overall increase was offset by a 1% drop in meat prices.
This lands Kiwis with an overall inflation rate of 6.7% over the last 12 months.

Some limitations still continue to be an issue, for instance egg shortages.

Manufacturing has slumped to its lowest level since Covid-19 lockdowns began in 2020, with staff shortages a factor.

Unsafe staff

The healthcare industry is of particular concern as staffing limitations are causing some clinics to scale back their services . Nurses are protesting over the issue. A spokesperson for the group of 57,000 members was quoted saying the shortages are causing unsafe working conditions that show the Government undervalues healthcare workers.

Not to worry, Te Whatu Ora has a task force looking into the health systems workforce, and has produced a draft of a plan to tackle the issue. The task force has set up 6 additional working groups, to help get staff to the places they are needed most. Gotta love the proliferation of bureaucracy over results. Will removing COVID mandates,  allowing unvaccinated staff to return, be in the plan?

Economic update, April 2023 - Centrist
Trademe Property index, when zooming out,  looks largely similar to NZD money supply.  Surely a coincidence.

Lost property

Housing prices continue to decline. NZ’s median house price has dropped nearly 13% over the last 12 months, the biggest has ever seen.

On the money

The RBNZ, along with many other reserve banks have been raising interest rates for the past year. This move is designed to mitigate price inflation by reducing the desire to borrow, thus reducing the amount of new currency entering  the economy. Last week, the RBNZ increased its key interest rate from 4.75% to 5.25%.

We are yet to see anything resembling success on this front, as prices of virtually everything – except property – are still rising.

A bit of hype

In politics this price inflation is called a cost of living crisis, but that doesn’t explain where it is coming from. Some economists, like former US FED chairman Alan Greenspan, argue price inflation is largely a phenomenon of monetary policy. So perhaps it should be referred to as a crisis of government printing and spending well beyond their means.

A government that respects and understands the complexity of the economy, and a reserve bank that maintains a sound currency, will be critical in navigating this crisis and mitigating damage to the long-term wellbeing of Kiwis.

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