I was walking along the street today and, as there often are, there were charity collectors with buckets trying to get donations. Yet everyone walked past without a second glance! Why is that: are we just callous and uncaring, or is it something else? Read more
Inflation is an important issue for everyone in New Zealand at the moment, with rising food and oil prices driving our annual inflation rate has fallen outside the Reserve Bank’s target band (hitting 3.2%pa in December). The fact that inflationary pressures are elevated will make it difficult for monetary policy to respond to any slide in real economic activity – a definite concern for New Zealand.
At the same time there has been a lot of talk about how the emissions trading scheme will impact on inflation. Both the Reserve Bank and Westpac are telling us that it will lead to a higher rate of inflation, and commentators seem to have accepted that it will – but how does this work?
I find it weird when people tell me that we should not cut taxes because a slowdown in the economy means we are going to run a fiscal deficit. Now you might think I’m weird for thinking its weird – after all many people see it as equivalent to this: think of it like a household, when your income falls you should cut back on spending so that you have more to spend in the future.
However, thats the question – has our countries ‘lifetime’ tax take fallen (which would imply that we need higher tax rates to fund current spending), or is this budget deficit just the result of a cyclical movements in our countries income. As it seems like we are moving into a cyclical slowdown, there is no reason to take tax cuts off the table.
It came as no great surprise that the official cash rate was left on hold today. As a result, attention should move to the statement and the forecasts.
What struck me in the statement was this:
“The outlook for economic activity has deteriorated somewhat since we reviewed the OCR in January.”
That has to be a poor sign. However, the chance of any cuts was dashed by this:
“Given this outlook, we expect that the OCR will need to remain at current levels for a significant time yet to ensure inflation outcomes of 1 to 3 percent on average over the medium term”
Oliver Woods has used Matt’s post on the trade off between equity and efficiency to launch an attack on the separation between normative and positive economics. Matt’s busy with real economics today so it falls to me to defend his honour. Oliver claims that
…any ‘rational’ observer would see that economics and politics/society/morality are fundamentally intertwined. They’re really more or less the same thing…
There’s a very good reason why economics and politics are entirely different beasts: economists can be right (or wrong), but politicians can never be right. Read more
Yesterday the Reserve Bank of Australia lifted their official cash rate to 7.25%, only 100 basis points off the New Zealand rate. The accompanying statement is here.
I’m still unsure about how to read these new RBA statements – they are a little less focused than the RBNZ ones, often trying to focus on as many issues as possible.
The bit I look out for is when they say “a significant slowing in demand from its pace of last year is likely to be necessary to reduce inflation over time”. This implies to me that they might lift again soon.
However, they said this in both statements. The best comparison comes from looking at the last paragraph in both statements: