Tuesday, January 13, 2015

RBNZ AND 'INFLATION'

I see there is some passing comment in the Royal New Zealand Herald (that was) that the Reserve Bank Governor might have some explaining to do given that inflation is expected to fall to less than 1% which is outside the RBNZ target range of between 1% and 3%.     Certainly that appears likely when you factor in the unprecedented drop in fuel prices with the NZL dollar remaining close to historic highs.

There is no great argument that high inflation is bad for the economy as a whole.     A side effect of high inflation is that it encourages people to borrow and buy in the expectation of prices going up.    It is also argued that negative inflation (deflation) is bad for the economy as it can destroy equity and can encourage people to hold off spending decisions in the expectation of a reduction in prices.  

While both may be right in theory there are many factors in play that determine how people spend or not spend but one thing I do know .... rampant inflation is a killer, so to are mortgage rates at 11%+ as they were not so long ago.     Give me low or negative inflation any day over that.       The Country owes much to the passing of the Reserve Bank Act and also the Public Finance Act which requires the Treasury to disclose the fiscal risks faced by an in-coming government prior to any election.

  

1 comment:

Adolf Fiinkensein said...

And it these two bulwarks of economic and fiscal stability which the loons from Labour and The Greens wish to dismantle so that they can finance election bribes on the never never.