ZB

Andrew Dickens: Now is not the time for a government to be adding money to an economy

Author
Newstalk ZB,
Publish Date
Tue, 19 Apr 2022, 4:27pm
Photo: Getty Images
Photo: Getty Images

Andrew Dickens: Now is not the time for a government to be adding money to an economy

Author
Newstalk ZB,
Publish Date
Tue, 19 Apr 2022, 4:27pm

Inflation to the left of us and inflation to the right. 

For months it seemed like the only story in town was Covid but then along comes Ukraine and, of course, inflation. 

For the past 12 months, inflation has been on the rise and has become a highly politicised issue around the world. 

We need someone to blame and we need someone to fix it. 

The problem with politicisation of inflation economics is that people shout past each other failing to hear what are good ideas. 

For quite some time we've been hearing Grant Robertson quizzed on inflation with questions along the lines of: 

"Is the rapid rise of inflation due to your fire hosing of borrowed and printed money into the economy" 

And time and time again you'll hear him answer that inflation is a global problem that combined with supply chain problems is affecting the New Zealand economy. 

The government won't admit their part and the opponents minimise the global situation.  

Now, the question's not wrong and nor is the answer because inflation is due to all those factors.   

But the answer will need to be aware of all the factors. 

The problem is all the talk is of the past when the problems lie in the future. 

So, it was refreshing to read an interview this weekend with Reserve Bank Governor Adrian Orr that he gave to the IMF. 

Orr said the challenge in front of all central banks now is how to tighten monetary policies to constrain inflation expectations but without creating a recession. He's wanting a soft landing not a hard one. 

His only tool are interest rates. And his mouth. 

He told the reporter that the Bank must clearly communicate what the interest rate hikes are to achieve.  

But he also said the Bank cannot solve the situation alone and he called on all fiscal authorities to exercise caution on spending and ensure that any spending is targeted and effective. 

What the Governor is doing is warning Grant Robertson not to go on a spending spree with the Budget which is due in less than a month. 

We all know that the Finance Minister has been promising a 6 billion dollar spend up. Even if it is on great infrastructure, we really should have invested in 30 years ago. 

Now is not the time for a government to be adding money to an economy to burn in an inflation fire.