So, 2022. Another year of unwelcome tumult. After all that's transpired, it would be nice to think we could have a 2023 that passes relatively event-free.
But do we really think that’s likely? With everything that has happened since 2020? No, I don't think so either.
The fact is, the past three years have been pretty adventurous – and there’s nothing to suggest 2023 will be any different.
For me the over-arching issue over the next year will be the labour market. How it performs will set the agenda. Which is a very strange thing to have to say.
I simply can't recall a time when the labour market has stood so apart from what else is going on in the economy. Normally a turbulent economic outlook is coupled with jobless numbers rising. So far that just ain't happening at all. What we are seeing is very different to what we are used to. It's a labour market totally defying the economic situation in perhaps an unprecedented way. And definitely a mixed blessing.
We end 2022 with unemployment of just 3.3% (and tipped by the Reserve Bank, the RBNZ, to go even a bit lower yet) and private sector annual hourly wage growth of 8.6%. Our labour market is way too tight, way too hot. Something needs to give. The RBNZ needs to see unemployment start to rise, which will reduce pressure on wages and will have a dampening effect on spending. Such developments would be crucial in reducing inflationary forces.
But will the labour market start to develop some slack quickly enough? I think there must be real doubt. That’s why I’m not optimistic we can tame inflation quickly or easily.
‘Normally’ we could have expected to see unemployment rising by now. There's been few things normal since 2020, however. The jobs squeeze has been exaggerated this time around by the fact that our borders were closed for so long. The ‘normal’ release valve for employers of hiring overseas workers has not been available.
On the one hand, full employment is a blessing. It means that even though interest rates have been rising fast, mortgage holders can meet payments – because they are employed.
On the other hand, because people are employed and able to afford the higher interest rates - maybe they got a nice big pay rise too - the Reserve Bank’s efforts to stamp out inflation (through those aforementioned higher interest rates) are blunted. A full work force means not only that people can meet the mortgages - but they are still prepared to go out and spend as well, thus keeping economic activity hotter than the RBNZ would want.
The RBNZ's forecasting unemployment to rise to 4.8% by the end of the December quarter 2023. I think that looks unlikely.
More realistic, perhaps is that the RBNZ expects wage growth to remain elevated, forecasting an 8% rise in private sector hourly wages for the year to December 2023.
Ultimately, though - one way or another - the RBNZ needs some ‘slack’ to develop in the labour market. But it would want to see signs of this developing pretty early in 2023. If that doesn’t happen then the RBNZ may have to have a rethink on a number of levels. And I think it might need to do so.
If the labour market stays anything like as strong as it is now over the course of the next 12 months then it could change everything, including the inflation picture.
Ah, yes, inflation. The thief in the night that has returned to haunt us. Most people might hold that this is the real 'Enemy Number 1' for the year ahead, but I make it the second most important factor - after the labour market. That's because the labour market will ultimately set the tone for inflation. Everything hinges on the labour market at the moment.
But, okay, Inflation. Let's have a bit of a crunch about the situation we face because it's not quite just as simple as saying, wow, it was at 7.2% as of September, that's too high. (Though of course, that's quite true).
It's worth looking at details, however.
Inflation, remember, comes in two flavours - domestically generated (non-tradeable) inflation and imported (tradeable) inflation.
The RBNZ is hoping and forecasting that tradeable, 'imported', inflation, which has been thrown around by supply chain problems, Putin's war, and by fuel costs - to name just some of the biggest factors - will tail off.
The RBNZ forecasts annual 'tradeable' inflation to be 3.4% for the year to December 2023, down from the 8.1% annual rate seen as at the end of September 2022.
However, the RBNZ reckons our domestically generated inflation is going to be a lot more sticky. It's forecasting the annual 'non-tradeable' inflation to still be as much as 5.7% by the end of 2023, compared with 6.6% as of September 2022.
It is this latter type of inflation, the domestic stuff, that the RBNZ can theoretically do something directly about - through wielding its weapon of choice the Official Cash Rate.
And boy, has it been wielding the OCR. Since October 2021 the OCR has been ramped up from 0.25% to 4.25%. This is an unprecedented rise in such a short space of time.
The RBNZ's forecasting that the OCR may need to go as high as 5.5% by the second half of next year.
Interestingly though, at time of writing the wholesale interest rate markets are not believing that, with market pricing suggesting a peak OCR of somewhat less than 5.5%.
What that market reaction tells you is that the belief 'out there' is that the actions already taken will be enough to cool things down and a peak of 5.5% won't be needed. I'm not sure the markets are reading that correctly.
It comes back to the labour market. If that doesn't play ball (through unemployment rising) the RBNZ may be huffing and puffing till it's blue in the face. And I'm not sure if the 'markets' have quite taken that distinct possibility on board yet.
To switch for a moment to looking at the imported, tradeable inflation, while this is not something the RBNZ can control as such, it could certainly trip up the RBNZ's overall inflation fighting efforts.
You see, the point is, we have over a number of years become accustomed to negligible, or even negative imported inflation. It's just the way things have been. People, we have been spoilt. Globalisation has spoon-fed us.
In recent, pre-pandemic years, the low figures for imported inflation have masked the fact that we've actually had relatively high domestically-generated inflation.
For example, immediately pre-Covid, the annual rate of non-tradeable, domestic, inflation was 3.1% in the December quarter, 2019.
Remember the overall inflation target is for a range between 1% and 3%. So our domestic inflation was actually outside of that.
But it didn't 'matter' as such, because we were importing negligible or negative inflation from overseas.
In fact the annual non-tradeable inflation rate was just 0.1% as of the December quarter 2019, so that was dragging back the domestic inflation. This meant our overall 'headline' CPI inflation figure came in for the 2019 year at just 1.9% - sitting very comfortably in that 1% to 3% range. But really it wasn't that comfortable at all. Figures can be deceptive.
So, we look now to the future and find that, very significantly, and worryingly, the current expectation is for a return to the pre-pandemic pattern, with low levels of imported inflation, but with domestic inflation forecast to stay at elevated levels.
For example, the current RBNZ forecast for three years ahead (as per its November Monetary Policy Statement) is for annual domestically-generated inflation of 3.2% as of December 2025, but for imported, tradeable annual inflation to be just 0.2% at the same time. So, the RBNZ is believing that the pre-Covid pattern of us offsetting domestically generated inflation with little or no inflation imported from offshore will return.
But will this pattern return? I have my doubts. At time of writing the unpredictable Covid situation in China, just to name one thing, is threatening to upset apple carts in the short term. Globalisation as we have known it is surely under threat if not already doomed. And then there's the future ongoing impacts of climate change, which all things equal, are likely to be inflationary.
All of which poses the interesting question: If overseas-generated inflation doesn't turn benign again, what happens?
The fact is, if we don't start importing low inflation again more would have to be done to curb domestic inflation.
Personally, I don't think we can expect things to return to 'as they were before'. At some point we may be forced to look at whether a 1% to 3% inflation target is even feasible anymore. Do we have to 'put up' with some inflation. Can we put up with some inflation? Economic theory says no, we can't. What's the answer if the conventional inflation-fighting approach no longer works?
As 2023 goes on these questions may start becoming more and more pertinent - particularly if inflation is not looking like behaving itself.
There's plenty to think about. And I haven't even started talking yet about migration, houses, the 'Big R' that the RBNZ is apparently engineering for next year and the not-small matter of the looming election.
So, lots more to discuss. And I will. Look out for Part II of this 'year ahead' series - coming to your screen soon.
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117 Comments
https://m.youtube.com/watch?v=sbI3G7t7pkc
Nice headline...classic Elvis.
I some what agree. I just think housing is mentioned so much because we are clearly a nation in too much debt to it. Anything related has more of an impact here than elsewhere. OCR moves shouldn’t be a daily talking point but they are because a decent amount of Kiwis owe too much and it impacts them more than it probably should.
With all due respect Yvil, here you are doing that very thing - how ironic. Complaining about "off topic" comments is merely an excuse to take a jab at those with views and personalities that are opposed. Its seems to come from those who are void of substantial fact based response to begin with.
This "off topic" thread is now closed.
Grim. Noticed that Christchurch auctions yesterday were faring a bit better than elsewhere. But I don’t think Christchurch had the astronomical rises that other places did. Christchurch has always been a sluggish market even pre earthquake. Looks like it has the possibility to fare better to better than the rest of us in this correction?
Also the recent Mortgage rate increases and threat of 5.5 OCR for a year has both scared FHBers and massively reduced their max offer. There are people with deposits saved, but they are not interested going to open homes etc as the agents quote them price expectations so far removed from the 2019 Pre Covid levels that it's wasting everyones time.
In every falling market there are buyers all the way down.....
...going forward, wage settlements will need to show a clear softening trend. If the RBNZ sees a clear sign of disinflation, weakening employment, interest rates will then come down I guess. Even then it would depend on interest rates globally. Imagine what would happen to our currency should the RBNZ lower rates too quickly....
Wage settlements should in theory be pitched on the inflation that has already incurred, not the wage inflation that we think might happen if we're lucky.
If your employees have copped 8% since your last review and you offer them 2% based on prices not increasing as fast as they were, they've gone backwards unless prices actually start deflating.
Great article and good review of the situation in NZ. But one thing i really do not understand is why we have more lawlessness in the county when almost everyone is employed and is the time it great prosperity?
"We end 2022 with unemployment of just 3.3%" but RAM raids have increased and hard working poor people are stabbed to death. The housing dream is further and further away for younger generations.
Why is this prosperity looking more and more skewed to only favor the rich and powerful corporations making billions of dollars of profits but the ones working for them are just scrapibg by.
Is it poverty causing crime, or is it poorly parented dropkicks with no work ethic that choose truancy/crime/bludging/drugs & alcohol and therefore never improve their economic position? Because I bet we all know of kids from well-off families that are the latter.
You are right, someone in that position should turn to crime. That will fix it for them...
Or they can take charge of the situation. Tell their boss that they enjoy their job but unfortunately they can't get ahead in their town on the wages they are on, so they will be looking to move.
Well, there's an out-of-touch comment if ever I saw one.
The lower-skilled/manual labour type, who turned out to be rather essential during our lockdowns, don't have that option. I might perhaps know - I worked with thousands of them for over a decade. There'll always be another minimum wage opportunity - but one that pays more is far less likely. Too many (or few depending on your p.o.v) capitalists creaming it off their serfs.
People focused on survival, especially with dependents, usually don't have the time or energy to strive for more.
"...don't have the time or energy to strive for more".
There is a once in a generation opportunity right now with low unemployment. That window of opportunity will be closed soon after the next election when the immigration tap is opened wide. It will be less jobs, lower wages, higher rent.
If you can't see a future for you and your kids in Auckland, get out now.
Riiight. So, once in a generation, they get to "take charge of their situation"?
People who are working multiple low-paid shift works, alternating family care, to pay for their rent, food, power and petrol don't have time to browse interest and read such tripe - let alone the time it takes to find a higher paying job.
But I 100% agree with you on next year - I'm watching job boards and it feels very similar to early 2008 (but that's a gut feeling, have to wait and see if there's any empirical data to back that up).
There's already fierce competition for jobs in certain sectors - I suspect people under mortgage stress are very keen on getting second jobs at the moment.
They are the symptoms, and not the contributor.
The main contributors are 1: Lifestyle choices and 2) even when the right choice is made, that choice will not allow you to earn enough to escape poverty.
The argument you even hear from some interest.co.nz commentators, is that everyone should buy a rental, which shows that they can't do simple maths.
We have created a society where more and more people have to get subsidized just to get above the poverty line, and that to stay in the 'mid ground' (the middle class) which is the ground between qualifying for a subsidy, or jumping well ahead and being wealthy, is the worst place to be. And for many people, it is easier (and in many cases necessary) to go out of their way to drop down the ladder to qualify for a subsidy.
Ironically it is those parties screaming loudest about increasing crime and poverty that are advocating for more immigration to drive down wages.
We should be happy we have low unemployment and high wage growth especially at the bottom end...isn't that what we have always wanted?
It should be no surprise to anyone that deliberately lowering the prison population has increased the number of criminals out causing trouble among society.
Wage growth is fueling inflation and a way to counter that is to open up immigration.
Unfortunately Michael Wood appears to be actively slowing immigration and I’m unsure why.
Businesses are now closing their doors because they simply cannot find staff so 2023 is shaping up to be an economic disaster.
I was chatting to someone today who is a renter and who has been wanting so buy for years .. so i thought they would be excited for the opportunity presented by lower fhb prices .
But no.. their work is quiet at the moment (big company.. apparently they now have expensive rates, young/less experienced staff) And so they wont buy because of lower job security. Their cash is seen as a buffer against unemployment.
Jobs will.be cut. Wages or work hours will be cut for those that want to remain in work. It wont be about employers needing to pay employees more because of inflation.. but employees wanting a job and some income.
A rapid change is coming. The upward spiral is about to be replaced with a downward one. Orr has likely overcooked it.
Most lawlessness these days seems to be actioned by 10-16 year olds. Yes they will have a fence, but my point is that lawlessness today is a direct result of children not being at school. Some of those school truancy numbers are unbelievable, and the sad results are playing out on our retailers, being robbed in broad daylight in some instances.
Our education system has lost its mana, judging it by the huge numbers that do not attend regularly.
They're all on TikTok, posting videos of their escapades and egging each other on.
Just another example of the role of social media in encouraging crazy behaviour and ideas.
I don't think Covid has done any favours for those kids who were marginally engaged with school anyway - without middle class parents with the time and motivation to enforce online learning some have just abandoned the whole thing.
Parents failing to provide adequate upbringing to their children. These unfortunate young ones are more likely to become burden to society. Pressure will be on tax payers and we don’t have enough people paying tax so we will need to keep the immigration tap flowing. Our population will keep on increasing.
Can’t disallowing people from having children even if they can’t afford them.
The System is broken, plain and simple. Kids today have very few, if any consequences to bad behaviour, or the consequences are so namby pamby they are irrelevant. If consequences as a kid are severe, you sort your shit out pronto. I was caned, strapped and smacked at school/home. That belt hanging in the kitchen cupboard was a pretty good think it through before acting mechanism.
Surprisingly I and millions like me are normally functioning adults.
The suggestion is violence? And anything else is namby pamby? Agree that there are few consequences, but disagree that they have to be unnatural.
You make a mess, you clean it up. Simple.
You make a mess, that's a paddlin'. Not simple.
This definitely starts at home with consequences for your actions, but disagree that violence as punishment is the answer in any way, shape or form.
There is more to consequences than calling all forms of physical constraint violence, after all, if you won't go willingly with a police officer they will forcibly make you go, and the State can forcibly send you to jail.
. And what do you mean by disagreeing with punishment?
Just as there should not be, no consequences for any action at one end of the spectrum, neither should there be automatic physical violence for every perceived slight.
This also means that there might be occasions where both one or the other might be appropriate.
There's low discipline in our youth - and it's not hard to see why. Kids aren't going to school.. well ok, what's the outcome of education in New Zealand?
13 years of school, 3-4 years of a degree to be employed in the health sector to become a nurse? You'll never have a home.
13 years of school, 1 year of a course to be employed in emergency services? You'll never have a home.
13 years of school, 3-4 year of a degree to be employed by a university, 5 - 10 years of experience? You might be lucky to qualify for 30 more years of crippling debt.
13 years of school, 3-4 year of a degree to be employed by a tech company, 5 - 10 years of experience? You might be lucky to qualify for 30 more years of crippling debt.
"Stay in line or be punished" - well staying "in line" is already more punishing for these kids than the outcome of whatever crimes they're committing so how would punishing them more help in any way whatsoever?
If the plan is to remove them from society, then that’s simply a can kicking exercise. What happens when they get out? Back to the same for most.
If the plan is to discipline them and reintegrate back into society, then there needs to be some hope for them in society. Previously this was the hope that a good education and good behaviour could take you places but that’s simply not the case anymore
More people are not employed - the numbers of people on benefits has increased by 40% under Labour.
In Sept 2017, there were 277,218 people receiving a main benefit, or 9.3% of the working-age population
There are now 345,762 people receiving a main benefit at the end of September 2022 or 11.1 percent of the working-age population
As the saying goes, "the devil makes work for idle hands", and the Labour Govt has entrenched a lot of idleness.
On Homes.co, my home has risen in price two months in a row - go figure. It read like comedy fiction. Its a complete crock. Before I get accused of being a fanatical price checker - I'm not.
When the ruling elite and economy are so reliant on the prices of a single asset class, it's not surprising. Without the property ponzi, Granny Herald's revenues would be severely dented. No disrespect to them as a media orgn as they have had their moments over the years.
I came across someone in October who seemed to use the homes.co estimate and the agents assessment of the level of drop in the area to calculate a bid on a house. It was the winning bid by a very long shot. I’m sure they are very regretful now. What accountability do Homes.co have? This is financial information they are presenting to the public that has absolutely no rigour in it. Someone needs to pull them up on it.
Oh don’t get me started on homes.co ………..
"Desperate times call for desperate measures."
US lawmakers have voted to approve a bill to stave off a strike by railway workers that could potentially devastate the US economy. The bill binds companies and workers to a September agreement brokered by the Biden administration...The deal included 24% raises - the most in more than 40 years. About 7,000 freight cars could be taken out of service each day, sending prices skyrocketing
How this plays out will have ramifications for us all. What if the workers demand 48% now? The ball appears to be in their court (and yes, an airline flight controller's mass dismissal on 40 years ago looms. But back then there was a pool of baby-boomer to fill the jobs. Today, those same workers are retiring, and those who might be sacked today have a choice their fathers didn't appear to have. Demographics, yet again)
The reason for the strike is the lack of paid time off and paid sick leave. They get zero paid sick leave and were using paid annual leave instead, forcing them to miss out on family time.
These railroads gave 18B in buybacks to their investors, I guarantee it would cost <5% of that to provide 10 days paid sick leave each year.
Companies buying back their own stock to reward investors should be taxed immensely for it to incentivize paying dividends instead, especially railroads which are effectively natural monopolies. Buybacks are a total waste of money.
In Australia and New Zealand, over half of all mortgages will reset to higher rates in 2023, and in the UK about 40 per cent will, according to Goldman Sachs.
This has to be the number one issue facing the NZ economy in 2023.
Has Mr Orr got it just about right, done too little, or perhaps done too much....
This has been decades in the making. Orr and Robertson are very small vessels on a very large and turbulent ocean with storm clouds on the horizon.
Sure they could have protected the vessels better in recent years, but they can't control the ocean or the storm - the severity of the storm and ocean has been caused by a myriad of decisions and actions made by leaders and the populations of people living within New Zealand and other countries around the world over a long period of time. Each has resulted in the current conditions we find ourselves in, good and bad.
Some of the most stupid moves are in recent times: (1) dropped the OCR to 0.25% (2) removed the LVR restriction during lock-down (2) lifted the FHB granted which immediately set a new bench-mark price and added in the KO 25% equity share. All of these moves PLUS the incentive for new builds turbo charged the 'junk' build market. Orr and Roberston added accelerant to the burning asset class.....and now 'whheeeee' the air is all deflating and deflating out of the pockets of all of those who were sucked into the story....by irresponsible fellow human beings (ones who probably were more wise than the suckers).
Big Agency saved by the bell, the last house must have been a short auction as the opening bid got it
42 Rangitoto Avenue,Remuera
sold for $4,500,000 one single bid, CV was $5,100,00 , thats a nice address and a nice house.
an 11.7 % discount to cv last sold in 2007 for $1,100,000
It's somewhat ammusing that OneRoof, even though this was in the middle
of one of our best suburbs in our biggest city.... did not have enough data to make an estimate (mmmm BullS*%t)
So only this one sold today the rest had no bidders.
This is a disaster on so many levels, each of these famillies/wanted wanted to sell today and now face considerable angst over the xmas period trying to find a buyer and worrying what 2023 will look like.
Hi David, great article thank you!
Inflation, the thief in the night that has returned to haunt us. Most people might hold that this is the real 'Enemy Number 1'
Well inflation has certainly been bad for many, in the past but I do wonder if things are not different this time, especially, as you mention, with the high employment rates and high wage increases. I would like to ask a genuine question and open a debate:
If wage growth keeps up pace with inflation and there is very low unemployment, then is inflation still enemy number 1? and if so why?
Yes my question applies to everyone, including workers on minimum wage and super annuitants, anyone out there in this situation? The question is; if minimum wage and superannuation keep up with inflation, is inflation still public enemy No1 and why? Anyone please?
Money is just a means of exchange. If everyone's wage or means of earning increased at the same pace as inflation, ownership of the collective wealth would stay the same but inflation doesn't seem to work like that as it generally hits thr poor, young, old and those without assets the hardest and disrupts the system from the ground up.
"it (inflation) generally hits the poor, young, old and those without assets the hardest"
"generally" yes, but is it really the case today? I doubt it. High inflation today means higher interest rates and the outcome of this is lower asset prices, could we therfore not conclude that today's inflation hits asset holders and wealthy people more than poorer people?
Yvil - which type of inflation are you talking about. Monetary inflation or consumer price inflation?
https://qph.cf2.quoracdn.net/main-qimg-58c7e7c3511b5bda1bf8aded1c8d57b5
As you well know this is a deflection from the real issue which is that the highest form of freedom in NZ comes from owning freehold land. It is akin to the terms of reference that specifically exclude the real solution from being arrived at such as those placed on the Tax Working Group headed up by Sir Michael Cullen. You also conflate inflation and measured CPI when the two can be very different.
If everyone is permitted to have an equal level of freedom then all must have the realistic opportunity to obtain freehold land and place shelter onto it in their lifetime. So, I would say land price inflation is the public enemy No 1 but we both know that isn't the inflation you are asking about. You're referring to the restricted CPI view of inflation that in of itself isn't public Enemy No 1 to the groups you refer to for the reasons you state. However, ask those just above minimum wage who didn't get a pay rise and their answer might be different.
There is no mention of wage/price spiral in your initial post hence I'm trying to lead your thinking - but you just don't realise it yet.
So I'm not rephrasing your question - I'm asking something of you to clarify your level of knowledge and that will ultimately lead you to your answer.
So I ask again, do you understand the risks of wage/price spiral?
If you do, you wouldn't ask your original question.
Why do you think RBNZ have a price stability mandate?
I'm certainly not over-complicating things - inflation isn't a straight forward topic so don't expect an easy answer in the comments section of this website.
The most basic answer that I was alluding to is wage/price spiral but there are also considerations around interest rates and foreign exchange, and our country's ability to trade with other nations if our rate of inflation isn't closely matches to our trading partners and relative to the global reserve currency.
How is everything in Turkey these days?
Here's a good site if you want to self-educate (as it appears nobody is going to answer your question on here):
A bit disappointing that no one engaged into a discussion whether inflation is still bad if income growth keeps up with the cost of goods and services. All I got are loaded questions with the preconceived idea that inflation is bad, but no one used their brain to actually engage in the debate
I thought the obvious answer was given, the wage spiral. Yes if they can keep inflation at 7% then I would be quite happy with that, but there is the risk that it keeps spiralling to 10 or 20%. Anything past that would be almost impossibly to stop and we’d be in Zimbabwe territory.
OK. Inflation is bad because:
1. Incomes always lag inflation, so it's impossible for them to rise together. The reason for this is quite simple: people have orders of magnitude more output streams than input, so even if each stream only adjusted price once per year, they'll see the cumulative effects in almost real-time for their outgoings, but only occasionally for input. Overall, they are worse off with reducing purchasing power in the period between pay rises, which means reduced purchasing power on average (actually the same for everyone, but there's a psychological factor too).
2. Inflation affects consumers after tax, but producers before tax. This gets especially worse as your income increases - because most graduated convoluted tax systems are far from fair. Though, once you get to the point of affording assets (see below, 4), then your tax burden eases through a different unfairness in the tax system.
3. At some, most likely several, point/s in the supply chain, labour is the largest component. But to give workers a 10% after-tax payrise requires a 15% price increase (depending on a number of factors, but it's a multiple > 1 regardless). Even fossil oil and other energy sources - because there was a huge amount of labour went into it's production and distribution via the construction and maintenance of the supply lines - the cartel behaviour of the supply owners notwithstanding.
4. In the long term, inflation pushes the prices of assets up, devaluing labour. House prices are a good example of this - that $1800 snells beach house that is now $1.5M - is still that house. But because of (2), and the fact inflation compounds (as long as we're targeting any non-zero percentage), the workers income has been devalued. This is why house prices should never have been removed from the CPI - we simply stopped measuring the inflation and pretended it didn't exist (though the rising DTIs told a different story).
The best realistic target for inflation would thus be 0%. And interest rates should be set so as to keep the cost of borrowing from the future high, to reduce the risk of the future being blown today on speculation (though it all ends up in someones pocket somewhere - unless destroyed). Granted, if we applied high interest rates today, we would see much of the current financial system blown away through debt destruction via liquidations and bankruptcies. But that merely reflects the fact that an awful lot of businesses are currently running divorced from the fundamental value of labour.
Chaos, thank you so much for a thoughtful reply, I think you make many good points. I'd like to make two counterpoints (I'm not arguing).
Firstly the premise of the question was "if incomes keep up with inflation" which, according to the article's author is currently the case.
Secondly, I find your 4th point most interesting, indeed in previous inflationary times, real estate has provided a great hedge by increasing in value. This is NOT the case now, as RE values drop because of the rise in interest rates. Could it therefore not be concluded that this time around, with income keeping pace with inflation, extremely low unemployment and dropping house prices, that house are becoming much more affordable (DTI's reducing markedly), which many would consider a very good thing?
I doubt many economists will say the best inflation rate is 0%. A good economy requires people to spend money not save, and inflation encourages you to spend your money while deflation encourages you to save. I reckon 4% is probably optimal, not sure why they target 2%.
I think the answers have been fine.
Theoretically for wage earners, if wage growth keeps up with inflation then maybe no big deal, but it hasn’t. Even if we assume gross wage growth keeps up with inflation, that doesn’t account for income tax. So wage growth would need to be significantly higher than inflation.
Further, high inflation equals high interest rates. For wage owners with large mortgages, increases in mortgage payments will often exceed both gross and net wage increases.
And of course, the above only deals with wage earners. Many superannuiants and beneficiaries go backwards quickly with high inflation, unless super and benefits are raised significantly. And that is not good for the government coffers.
in conclusion, inflation is bad for these and many other reasons.
right?
Yes and it does not count all the professional people who get told they have to run their savings down before the qualify for a benefit. Or contractors who will just see it as taking a break between jobs....
He is not even going to get close imho this year but easy next year.
We have seen Xmas week company closures before in NZ as that way companies don't have to pay wages over holidays, instead the close them around the 20th December. Holiday pay becomes an unsecured creditor who gets paid after IRD and the Liquidator.
Also remember Tim a lot of these will be ones who took out large loans (remember they said rates would never get back to where they are now and any landing would be soft) as the RB whacked the OCR down, now the RB wants them to repay that at 8% plus rates with no income. People should be disgusted at what the RB and Robinson are going to do to some.
An Omen. The Rich, getting out.
Blackstone’s $US69 billion ($100 billion) real estate fund for wealthy individuals said it will limit redemption requests, one of the most dramatic signs of a pullback ...and a chilling indicator for the property industry. Blackstone Real Estate Income Trust has been facing withdrawal requests exceeding its quarterly limit.
IT GUY puts on his tiniest voice and whispers - "You mean, like a bank run?"
Full link https://www.ft.com/content/e1ddc6f0-eb0a-4d52-8971-b1d9c2cb5c02
To be fair these investors knew that the fund was optimised for profit not liquidity and that this could occur, it's in the fine print. Makes a good headline, now the Pros feel just like the people who tried to sell their house this week and got no bids.
The pyramid constructed with cheap paper is now crumbling. Still in awe of this great man made mountain of wealth, many continue blissfully unaware what happens when the rivers of money run dry. In Blackstone's case, it looks like the lucky few (big money) got out already and left the carnage for the underlings to swallow whole.
All is good when there is confidence.
From Stats NZ. Private sector average ordinary time hourly earnings increased by 8.6 percent to $36.09. Meanwhile, the public sector hourly earnings increased by 4.3 percent to $44.76.
Private sector average dragged up by 6% rise to minimum hourly wage in April $20.00 to $21.20. And corresponding pressure on lower end wages to rise to the existing workers with skills and experience happy
Public sector workers would have already been on rates above the minimum so their increases reflect the squeezed middle. Well below inflation.
Separate out the the middle two quartiles and see how they fared this year vs inflation? I suspect it would paint a different picture overall.
Also as the economy goes into recession those lower paid workers are likely to have hours reduced. Just 2 lost hours will remove the full benefit of their $1.20 per hour minimum pay rise.
Farmers have been complaining about lack of freezing works capacity (well down on normal) so have to carry stock over summer, not optimal, but the fact that the USA may be short of beef bodes well for farmers. It does not bode well for NZers who like steak, prices going up guys.
It would be nice if we could have some anti-inflationary fiscal policy that doesn't involve deliberate unemployment.
As it stands, we get 'gotta raise unemployment' from the RB, and gaslighting about inflation and counterproductive policy from the Govt.
How about targeted taxes? Tobin tax maybe? Enforce some anti-monopoly legislation? The government should be doing what it can to reverse the ungodly 'wealth effect' accumulated over recent years by any means possible that *won't* cause unemployment.
But, but, but, no mention of the government role in creating excess labour demand.
You know, lots of new jobs for earnest lefties writing reports for each other to read in extra-planetary Wellington, all of which basically say the same thing, ie "We know best and people should jolly well do as they are told [or else]?"
Or the horrifying possibility that vaccine injury is causing lots of illness? Oh sorry, the 15% increase in all cause mortality in RNA vaccinated population only happens overseas and might not be the vaccine, honest, cos that would mean those who think they know best made a mistake. Unfortunately it might be true, though. The reports coming out are extremely disturbing:
https://boriquagato.substack.com/p/the-receipts-on-vaccine-efficacy?utm…
Lots of people I know have had a rapid worsening of long term illness recently, or sudden cancer diagnosis, it is all very shocking.
Great article indeed. Seems the RBNZ needs some other tool other than the OCR. The OCR was the only tool they used to stimulate things to get us through GFC and COVID and it clearly makes the rich richer. People have made easy, easy money from owning property (s) over the last 10 yrs in NZ. A house worth 1 million became a house worth 2million. It's like everyone who invested in property won lotto. Go figure inflation is an issue. I made a million easy as and I wasn't even trying. I felt a bit clever like I was a property guru but I'm not. Bit of luck and having enough equity from putting extra money on the mortgage when they dropped the OCR post GFC in 2008 to hold onto an existing property when buying a new one. I then then sold the first once it was worth enough to clear the mortgage on the 2nd (ok I was smart enough too see that was an opportunity that was not going to last forever- Ponzi scheme clearly, get out while you're ahead!) Ashely Church said this week that we will all soon be talking about house price increases again and that this is just the cycle. It seems to me that if the housing market takes off again anytime soon it will worsen the already crisis level of inflation/ inequality/and crime. It's amazing he can't see the link...I don't get people who celebrate rapidly rising house prices.
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