In the United Kingdom, inflation is running at its highest rate in 30 years. In the US, inflation hit 7% during 2021. You wouldn’t want to be in Estonia, where inflation has just hit 12%. Across the Eurozone – the measurement methods vary – inflation is averaging out at 5%. In Canada, inflation is running at its highest level in 30 years. Inflation is not simply a problem afflicting developed countries. In a developing country like Brazil inflation is running at its highest level in seven years.
Point being, while yesterday’s annual inflation figure of 5.9% has a few local features it is also a reflection of what is plainly a global problem. The causes are beyond the control of any single government anywhere, regardless of how familiar those causes may sound to New Zealand ears. As the table in the Eurozone link above shows, housing costs and transport costs are the big drivers of inflation – categories which include rising house prices, rents and construction costs, supply chain blockages and high oil prices. The same factors are behind the New Zealand figures, with the price of second hand cars – which rose 12% nationally – being a factor peculiar to this country.
Otherwise, we are firmly in line with overseas trends: Oil prices rose here by 30% annually, while house prices by 16% on average nationally. According to Trade Me, the national median weekly rent climbed $40 last year, to $560. These are horror figures, with no short term end in sight. People who normally bought stuff in shops are ordering online, and this is one of the drivers of the supply chain shipment blockages that’s likely to persist. Even so, the current inflation picture is also different now than in times past. For one thing, as the CTU pointed out yesterday, there is no sign of the dreaded wage/price spiral that drove inflation skywards in previous decades.
We did it differently back then. During the late 1970s/early 1980s, employers cheerily passed on wage rises and consumers picked up the tab by paying through the nose in higher retail prices and sky high mortgage interest rates. (Again, this was a global problem at the time, even during the supposedly austere Reagan era.) But this time, and due largely to the Covid-driven lid on immigration, unemployment is running at very low figures. Even so, and despite the reportedly tight labour market, wages are not rising at anything like the pace that would be needed to keep up with inflation. As the CTU said yesterday:
…..Wages are not driving the current inflation changes. The latest data from on wages from Stats NZ shows that 42% of New Zealand workers did not get a pay rise at all last year. More than 80% of workers are getting pay rises less than inflation. Overall, the Labour Cost Index shows that wages increased 2.4% last year. Whilst some economists may be worrying about a wage/price spiral, we have yet to see increased costs feed their way through to increased wages.
Will inflation last?
The expanding gap between prices and wages is surely not sustainable. For the past year, economists in the US (e.g. Paul Krugman in one camp and Larry Summers in the other) have been unsure/divided over whether the current inflation is a blip or an enduring fact of life. A week or so ago, Krugman published a column – it was part mea culpa and part how come – on why the inflationary “ blip” from Covid stimulation measures has lasted longer than expected. In New Zealand, the Reserve Bank has been sitting somewhere in the middle. Sure, it has been raising interest rates to dampen down the inflationary fires, but its related commentary has kept on insisting that the current causes of inflation are only temporary and in… Oh, about eighteen months or so, these Covid-driven costs will subside, and inflation will return to figures within the Bank’s target band.
This isn’t merely wishful thinking. As the CTU also argued, some of this week’s headline inflation figures can be attributed to the bounceback from the initial recovery, as firms tried to make up the ground lost in 2020.
….This [week’s] inflation data should be treated with some caution as it reflects not just where we are now, but also where we were a year ago. Auckland was just coming out of a level 3 lockdown, and the New Zealand economy was still recovering from previous COVID-19 lockdowns. Some bounce back in prices was inevitable as a consequence. It remains to be seen if prices remain elevated as COVID-19 related lockdowns work their way through the data in the future.
But here’s the CTU’s other point: “What is needed now is to make sure that we are protecting those with the least ability to incur higher costs.” In the here and now, the rising cost of living needs to be addressed, no matter how transitory the current situation may, or may not prove to be. Yesterday, the US Federal Reserve finally and reluctantly announced its intention to raise interest rates in the US, probably starting in March. That’s when our own Reserve Bank is likely to hike interest rates up again, probably by 50 basic points. What’s missing from the picture of the government/RB response are significant steps to assist those in paid employment on low incomes, and those subsisting entirely on benefits. These groups are facing large supermarket price rises for basic staples (e.g. milk) and soaring rents, even for those lucky enough to find a place to rent in the first place.
So far, the response by this allegedly centre left government has largely been restricted to rises in the minimum wage. While welcome, the minimum wage hikes bypass those living on benefits, and are plainly insufficient in any case, given the trajectory of today’s rising costs. Yesterday, columnist Bernard Hickey provided an invaluable and startling overview of the lashings or corporate welfare that business has received, on average, over the two year course of the pandemic.
While much of the media has been providing a ready platform for business tales of woe, Hickey’s use of Stats department figures shows that in reality there has been huge rises in corporate wealth and income inequality over the past two years. largely thanks to the government/Reserve Bank support measures to prop up the economy against the impact of Covid, and to ward off a major recession. In an illuminating interview with RNZ’s Kathryn Ryan, Hickey- among other things – slammed the lack of any subsequent attempt by government to claw back some of the taxpayer-provided support from firms that proved they patently did not need it by – in some cases– paying the taxpayer funds out in dividends to their shareholders. The handling of these multi-billion corporate welfare handouts, Hickey pointed out, has been in marked contrast to the government’s relentless pursuit of repayment of any monies advanced to beneficiaries in need.
To be clear: Few people would question the need to support the economy from being capsized early on, by the pandemic. If the 2008 Global Financial Crisis taught us anything, it is that quantitative easing is a vastly more effective and socially humane tool than the austerity policies favoured by conservatives. When a major global economic crisis occurs, centre-left parties are simply more competent at managing the economy than the centre-right. (If anything, the Obama support package, while vital, was actually too small.) In the early Covid days, New Zealand seemed to be looking down the barrel of the biggest recession in 80 years. Quantitative easing – ie, keeping the wheels of commerce greased – averted the worst outcomes that were looming, here and elsewhere. Today, most of us would probably prefer having some inflation to massive unemployment. Even so, Hickey is dead right: The money advanced that proved not to be needed should have been recouped, at some point in the curve.
Unfortunately, that’s somewhat easier than done. When should that recoupment process have kicked in? The risk – and it was a political risk as well as an economic risk – was that a clawback would have been depicted as stamping on the recovery at the end of 2020 just as business was beginning to make up lost ground. Remove wage subsidies at, or just after Christmas 2020? Hardly. With the benefit of hindsight, some of that early easy money extended to business could/should have been diverted into cash advances of say $NZ1500 to every household. To be meaningful though, such advances would have had to be large to be substantial.
Even then, they would also have been legitimately criticised as generating a one-off consumer splash-out that didn’t address the structural causes of inequality. A handout to households wouldn’t have significantly altered the imbalances at the heart of Hickey’s conclusions. At best, they would have just made the outcomes look a little bit better, cosmetically.
Neil Young and Spotify
Neil Young’s moral stance against the collusion between Spotify and Joe Rogan in making money from peddling anti-vaxx dis-information has been totally admirable. And so far, totally lonely. Where is the tangible support for Young from other artists? Young had been one of the relatively few musicians big enough to benefit from Spotify’s miserly pay-for-play calculations.
Luckily for people who love Neil Young’s music, there are other venues. The Neil Young Archives for instance, comprise a massive treasure trove of concert recordings, Neil Young movies, rare album out-takes and other invaluable curiosities, and it has a comments section in which Young himself regularly participates. Sign up for free access to the Archives here. For beginners, the Aquarium Drunkard site has put together a couple of great sample compilations from the Archives, and they’re available here. To take just one example of a zillion treasures that the Archive contains, here’s a lovely out-take – a lullaby called “ Barefoot Floors” – from 1974: