Inflation data adds to Labour's woes

Last updated 15:23 16/07/2008

Labour will be happy that this week's truly horrible inflation data came out during the Parliamentary recess.

After all, the highest inflation in 13 years and the biggest quarterly increase in food prices since June 1990 isn't something either Prime Minister Helen Clark or Finance Minister Michael Cullen particularly wishes to be quizzed on.

It's amazing how quickly things have turned. It seems like only yesterday that ministers were asking each other patsy questions in the House so they could in turn stand and brag about record low unemployment, growth rates higher than Australia's, or some other positive fiscal indicator.

It never ceases to surprise me how quick any government is to claim the credit when things are going well, and how fast it is to distance itself when things are not.

Take Cullen's prepared lines yesterday: "It is important to remember that our economic challenges are not of New Zealand's making. The global increase in the prices of petrol and food are outside New Zealand's control.'' 

Now whether you agree with Cullen or not depends, I guess, on whether you subscribe to the free trade market economy we operate in. But assuming he's right, it's still ironic. Can you imagine Cullen saying, after delivering one of his whopping surpluses of yesteryear: "It is important to remember that our economic good fortune is not of New Zealand's making. The global rises in commodity prices are outside New Zealand's control.''

Um. Don't think so.

However, Cullen can distance himself all he likes from the causes of inflation running at 4% and heading for 5%. He can blame all the Middle East unrest and growth of developing nations he likes for the fact that petrol is up a whopping 25% in the last year. He can moo about the rise in the value of dairy prices that has seen milk up 22% in a year and cheese 62% until the cows come home.

The fact is it's happened on his watch and voters, rightly or wrongly, expect him to do something about it. Cullen recognised this yesterday, referring to the October 1 tax cuts package which, he said, "will provide some relief'' Actually, as Cullen knows only too well, it will deliver very little.

The cruel reality of inflation is that the value of his $16 a week for the average wage-earner is eroding by the day. By the time October 1 rolls around, the increase in the price of petrol alone since the Budget would have accounted for half of the extra Cullen has promised. Fresh increases in the price of milk, bread, cheese, and fruit and vegetables will take care of the rest.

The Finance Minister will be hoping desperately that the Reserve Bank comes to his aid and cuts interest rates, preferably as soon as next week. But Alan Bollard seems an unlikely white knight for Labour at the moment. The CPI data might even spook the bank into holding off rate cuts altogether.  

In the short term, Labour and every other political party is powerless to do much about the international headwinds buffeting little ol' NZ. Longer term, obviously, either Labour or National could try to set the country in a different direction, if they were brave enough.  

There is, however, the matter of what happens to us in the meantime.

We could always have a debate about it, if the Opposition would engage. Yet all I know of National's plans for the economy is that it will reduce taxes, "cut red tape'', spend more on infrastructure, reduce government spending "so that interest rates track downwards'' and improve education standards.

There's almost enough apple pie in those statements to feed a starving family of five for a week. But the polls show voters are still happy with this level of detail from National, for the meantime anyway.

So what has Labour got up its sleeve? Has it completely forgotten its socialist roots? How about a return to subsidised milk, as proposed by the Green Party? A daily bread allowance? Cut-price petrol and power? Laughable, right? Well, in recent history, yes, but we used to have them all. Many nations - including OECD countries such as France - still do.

There's little doubt Labour will be punished in the polls for the way Kiwis are now hurting, and I'm not saying it shouldn't be. But it would be nice to know the alternative.      

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Andrew   #1   04:33 pm Jul 16 2008

Umm why should labour have something up there sleeve - helen has said business as usual so if they bring up any surprises, it will be seen as nothing but a pure election bribe. National should not release any big polices until the election campaign as labour will either copy it or try to wreck its implementation.

Personally, I have normally been one person who watches the political antics at a distance ut this Labour Led Government has really stirred me up to make sure I get everyone I know not to vote for them!


Roscoe   #2   05:06 pm Jul 16 2008

"There is no alternative." I seem to remember this line from the 1980s. I also remember the helplessness of Labour & National govts as oil shocks hit in 1973 & 1979. Nobody even tried to tame inflation back then.

As Southern Man keeps saying in your blog threads, this is a return of what the economists called "stagflation". That means that the economy is stagnating, so govts should spend to stimulate it. But spending fuels inflation, which govts should tame by strict monetary controls & clamping down on spending. It's a no win situation. Back then, to make things worse, inflation was 15%+. Now we're lucky, it's only 5%.

Or is it? I understand that house prices are included in the CPI. If so, that means that real inflation has been lower than publicly stated in recent years, & is now higher. Does that mean that we suffered higher than necessary interest rates in the last few years to tame an imaginary beast? And does that mean that a sincere RB Governor, doing his legislated job of taming inflation, should keep interest rates high today to choke inflation out of the economy? I'm confused. Could an economist please help us?

Colin, I don't have a problem with politicians claiming credit for positive outcomes from good policies. And I honestly don't think there is much that Labour could do about this economic storm that has hit in an election year of all years. It wasn't pretty in the 1970s. One Labour govt was landslid out of office because they just didn't know what to do. I doubt that anyone has much more idea now.

One of the lessons of those years was that stagflation can't be cured by printing money - which unfortunately is what the Federal Reserve in the USA is currently doing. What chance then of taming inflation here?

Jum   #3   05:17 pm Jul 16 2008

Inflation data adds to Labour’s woes Colin Espiner in On The House | 3:23 pm 16 July 2008 andrew It will make little difference what national promises. In the first year (and they won't get in despite what they think) they would be planning their agenda for the next year, not the next term. Remember what don brash and key said to us in 2005 in relation to nuclear. First they offered a referendum, then came the tell tale comment from brash that if the public voted them in they were saying yes to nuclear.

We should be careful what we vote for andrew. At least we didn't go to war with Clark in charge. We most certainly would have with brash, which suggests national is more interested in making whoopee with the old boys’ club than defending New Zealand’s interests by not entering an un-winnable war and generally making the future far worse for women in Iraq.

Roscoe   #4   05:32 pm Jul 16 2008


If you're going to spiel for Labour, go for it. But can you at least try to stay on the topic that Colin writes about? This early in the thread?

BillB   #5   05:33 pm Jul 16 2008

Jum - you are aware aren't you that we have troops in Afghanistan (if you don't believe me think about Willy Apiata, remember? He got a VC). And we have had troops in Iraq as well. So what's this tosh about Helen 'at least' keeping us out of the war? We are in there up to our necks. You are getting desperate if this is all you can praise your heroes for.

And it may surprise you many of us including Greens and Labourites, think a smart modern nuclear power station could be the answer to Auckland's power needs and take the pressure off the national grid - and our lakes and rivers.

After nearly a decade of the best economic circumstances we have ever had, we have nothing to show for it except a raft of beneficiaries.

Will we even have enough taxpayers and small businesses left to pay the taxes needed to pay for the dole and other benefits?

Adolf Fiinkensein   #6   05:47 pm Jul 16 2008

Actually, it's worse than you think, Colin. The rate for the last quarter was 1.6%. That means that for three months, inflation has been running at a rate of 6.4% per annum. That's how I recall dr Brash describing it twenty years ago.

Of one thing you can be sure. Irrespective of economic conditions, New Zealand cannot prosper if we have a government whose EVERY DECISION is made primarily in the interests of the Labour Party. That's the real cause of the current malaise. It's their underlying moral bankruptcy and that is what will turn them out. People simply are sick of it.

Luke C   #7   05:51 pm Jul 16 2008

Big tax cuts for the rich, as are likely to occur under National will certainly make things worse. National tax cuts always favour the rich. Its just not possible to give someone on $30,000/year $50/weekin tax cuts. Labours tax cut are 'small' because they are given fairly to those across all income brackets. If you look at Nationals 2005 tax cuts they gave $100 a year to anyone under $38,000, nearly half of all earners. Their tax cuts were, and again will be a cruel trick for many people. This was not mentioned by the media at all, which shows they are out of tuch with many NZers, especially those in the provinces and those on lower incomes.

Phil Wild   #8   06:19 pm Jul 16 2008

Jum, spare me please - with Clark in charge we now have war on our streets, an out of control booze fueled drug addicted beneficiary "everybody owes me a living" society. Roll on November!!!

Sam   #9   06:29 pm Jul 16 2008

Jum, what does Iraq war have to do with todays inflation. It is about for you to get off the non-labour bashing you always indulge yourself in. No I am not a National supporter, some of their policies frighten me as much as Labour, NZFirst, Maori and Greens.

Kate   #10   07:56 pm Jul 16 2008

The way the US is going (and quickly), I have a feeling by the time the NZ election rolls around, people may generally judge their own circumstances here quite differently.

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