Cause and Effect: An Economist, Policy Analyst, Businessman, and Beneficiary Advocate Talk About Inflation

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Inflation hits 32-year high – How did we get here, what impact will it have and how long can we weather the storm?

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How did we come here?

“How did we get here? Well we had Covid and after Covid we had a war,” said economist and author Shamubeel Eaqub The first standing.

“Those two things have really raised prices a lot.”

The two biggest increases people would have noticed over the past year were prices at the gas pump and at the supermarket. It was because of global issues, he said.

“One-third of the prices came from global factors, one-third came from housing, one-third came from domestic factors.”

Domestic inflation was very high, Eaqub said, driven by things like professional services, real estate services and the “absolutely anti-gang construction cost.”

It was likely that these things were expensive due to labor shortages and because immigration had been completely closed for some time, he said.

“We’re in a bit of this sticky situation, we just had Covid, the borders were closed, no workers were coming in, material prices were through the roof, I don’t want to hear about GIB anymore – we all these issues came together to create this perfect storm.

“That’s where we see central banks around the world raising interest rates, because that’s a surge in inflation around the world.”

What is the pressure on employers to raise wages?

As people struggle to keep up, what is the pressure on employers to raise wages to help them?

BusinessNZ chief executive Kirk Hope said companies were desperate to keep people, causing wage pressure in some sectors.

“I think there are some things we could do, some policy settings we could change to ease some of the pressures on staff, because it’s really a supply issue.”

In health care, this appears to allow nurses to come to New Zealand without the two-year ‘work-to-residency’ restriction, easing the pressure and therefore allowing the parameters of work to be safely relaxed. Covid-19, he said.

“You can’t pretend for a moment that the healthcare sector isn’t under pressure and that’s one of the reasons we’ve had really really tight Covid parameters, so until we ease this pressure, we are going to face inflation for a period of time.”

First Union policy researcher and analyst Edward Miller said morning report wages were rising, with the average wage and the labor cost index increasing by about 5%.

He believed that investing in quality universal public services was a way to improve living standards without massively increasing inflationary pressures.

“It’s partly about weathering the storm and partly about making sure that wage growth keeps pace with inflation enough that workers aren’t left behind. But a lot of that pressure comes from the international environment, so there’s also a bunch of things that the government can do, there’s no point answering those.”

Are interest rate hikes justified?

Miller doesn’t think so.

“I don’t think there’s a wage price spiral in this country and I don’t think there’s a threat of a wage price spiral. Organized labor doesn’t have the ability to ‘raise prices like we did before.’

Corporate profits and international supply chain disruptions were driving the inflation, Miller said.

Workers should not be punished with “hawkish” Reserve Bank prices, he said.

Hope said that no matter how much more someone earned, their dollar would be worth less if inflation took root in the economy.

“It’s a real risk, so they really need to act,” he said.

“There is variable demand in the economy, there are certain sectors which are doing quite well, other sectors which themselves could already be losing money.

Eaqub said higher interest rates will inevitably slow the pace of construction.

“It really worries me that while we control inflation, we could also kill the supply of housing, which we desperately need.”

Are people accessing the support to which they are entitled?

Nelson-based recipients’ lawyer Kay Brereton said many low-wage people were missing out on the government support they were entitled to – particularly the housing supplement.

But it was difficult to reach people who weren’t on a stipend but still eligible for support, Brereton said.

“Some of these people might even get food aid.”

Brereton said she was seeing more people who were working but needed help to get by, with people unable to afford food due to the high cost of accommodation.

“That’s the real driver of poverty that I see is people spending well over half of their income on housing, sometimes up to 80% of their income on housing.”

For some, there was only $20 per household member per week available for food.

Food banks weren’t really the answer to that problem, she said, with food security coming from people having their own choices about what food they need or like.

“It’s much better if people actually have dignity in their own food choices.”

Food subsidies give people more food sovereignty, she said.

“I would like the government to make it easier to get food subsidies at the moment, extending the caps so people can get a little more help.

“What I see is that people somehow manage – I don’t know how – until something invisible shows up like a car that needs fixing or that you have to go to the doctor and that just throws a very tight budget and leaves them short.”

Brereton would like to see the government consider a universal basic income.

How long can we weather the storm?

It’s control versus impact, Eaqub said. “We have very low control but it has a very high impact.”

“The impact is greatest for our low-income households because when the cost of living goes up, so food, fuel, rent, there’s very little left to spend on other things.”

People have no more money to spend.

That’s why consumer confidence was at rock bottom, business confidence and home sales were at recession lows.

“Yes, we will overcome it, and we will get through it during a recession.”

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