16 Jul 2021

Minister brushes off inflation concerns as growing pains

4:15 pm on 16 July 2021

Increasing inflation is an effect of unexpectedly strong growth in the economy, Finance Minister Grant Robertson says, but National is warning of its effect on vulnerable families.

Finance Minister Grant Robertson

Finance Minister Grant Robertson Photo: RNZ / Dom Thomas

Inflation hit a 10-year high of 3.3 percent, up from 1.5 percent in March, well above economists' forecasts and adding pressure on the Reserve Bank (RBNZ) to start raising interest rates sooner.

Robertson brushed off concerns, saying RBNZ expected rises in June and September to be temporary, and system was designed to handle it.

"While we are seeing inflationary pressures right around the Western world we also have a pandemic that's still going - so we're seeing there are high levels of uncertainty and volatility," he said.

"We now are moving to a different part of the economic cycle where the economy's growing and when some of these pressures are coming forward.

"One of the consequences at the moment, given the fact that we're recovering in such a constrained environment, is that we're seeing some inflation as a result of that but I think ... New Zealanders can be proud of where the economy has reached."

NZ families $9k a year worse off - National

But one of National's finance spokespeople Andrew Bayly said the party was worried about what higher inflation rates would mean for low income workers and beneficiaries.

He said the average New Zealand family was $9000 a year worse off since Labour came to power.

"Rental costs have gone up by $100 a week, we've seen fuel prices go up as a result of taxes but also underlying fuel price issues, we've seen food prices go up, and also what we're seeing in the building construction sector ... it's just bad for those on low incomes who don't have a lot of disposable income," he said.

Andrew Bayly

Photo: RNZ / Dom Thomas

"It's difficult because a lot of these costs are now embedded ... what we need to make sure is we try and reduce costs as much as possible so businesses don't have to keep pushing up their prices, so it means being careful about imposing new rules and regulations on people and businesses and just being much more mindful about looking after the interests of our more vulnerable members."

He said lack of labour and access to staff was also part of what was pushing inflation up, and he disagreed with RBNZ's view that the inflationary pressure was temporary.

"I think we've got supply issues with getting materials into New Zealand and I think that's going to be at least a year before that's resolved ... immigration issues, the government has a policy of not allowing immigrants into New Zealand."

Australian and Canadian businesses were actively trying to attract employees from New Zealand businesses, one of the main risks they were facing, he said.

Robertson said he believed there was still slack in the labour market, and supply chain concerns were global.

"We've already and for some time now been subsidising air freight ... it's a little harder when it comes to shipping.

"While unemployment is at a relatively low level, there is still slack in the labour market, there are still a number of people who would like more hours than they currently have ... and obviously you've also heard today the announcement that Kris Faafoi made around the extension of some visas, which comes on top of the extension of other visas that we've done."

He said increases to benefits would continue with another increase set for April 2022, wages were continuing to increase, and the government would continue to provide income support.

"We're acutely aware that for certain groups Covid has had a big impact ... we'll continue to do what we can to help."

He questioned Bayly's claims about the impact on families.

"I'd be very interested in picking apart those numbers when I've got a bit more time. What I do know is that we've got tens of thoussands more New Zealanders in work this year, we've got an unemployment rate down to 4.7 percent, we've seen GDP recover so production is where it was pre-Covid.

"We've got growth in the New Zealand economy that has exceeded where people thought we would be. There are constraints on us at the moment, those contraints include supply issues but they also include the fact that we continue to manage our broders. The management of our borders is one of the things that's got us to the position that we are."

He said the Reserve Bank expected inflation increases for June and September would "wash out".

"There are now some things coming through that are the problems - in inverted commas - of growth, but there are parts of our system designed to manage that. It will be up to the Reserve Bank to assess what that mens in terms of interest rates," he said.

"Clearly it is an unexpected development where we were a year ago."

"There are always cost of living pressures in the economy."