Inflation

January 19th, 2013 at 10:00 am by David Farrar

 

Inflation1945

Stats NZ have published the latest CPI and remains at 0.9%. The graph above shows what has been since WWII. It is due to that we are no longer competitive as an exporter unless the dollar is lower.

inflation1990

And inflation since 1990, showing the tail end of the 4th Labour Government, and those since.

Inflation over each three year term has been:

  • 1991 – 1993 3.7%
  • 1994 – 1996 8.5%
  • 1997 – 1999 1.7%
  • 2000 – 2002 8.7%
  • 2003 – 2005 7.6%
  • 2006 – 2008 9.5%
  • 2009 – 2011 8.0% (includes GST increase)
  • 2012 0.9% (for one year)

Printing money to fuel inflation is like a sugar fix. It gives you a temporary rush, but makes you sicker in the long term.

 

 

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7 Responses to “Inflation”

  1. Inky_the_Red (761 comments) says:

    Low inflation is not always good hence the RBNZ target or 1-3%. A low inflation can indicate low demand so could be an indication of negative economic growth or even heading to a recession

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  2. Lance (2,708 comments) says:

    So it always will be bad news no matter what the stats indicate aye Inky?

    Oh let me guess, if a leftist govt was in power all stats would indicate good news.

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  3. Wilbur (7 comments) says:

    “Printing money to fuel inflation is like a sugar fix. It gives you a temporary rush, but makes you sicker in the long term.”

    Um, no. Expansionary monetary policy is clearly a good thing in recessions. There are two mainstream analyses as to why unemployment is high during recessions. One is the classic Keynesian model. That basically argues that there is a failure of aggregate demand in the economy. Given that, ‘printing money’ — i.e. increasing the money supply to reduce nominal interest rates — increases aggregate demand, so problem solved. The second model is focuses less on aggregate demand, and more on the labour market. It argues that recessions reduce the value of labour, but wages are sticky and so can’t adjust downward. Therefore the labour market is out of disequilibrium, and unemployment increases. The trick here is that an increase to inflation directly reduces the real wages of workers which makes labour cheaper, and so reduces unemployment.

    The point, in general, is that no matter what model or ideology you sign up to, expansionary monetary policy works. That’s borne out by the evidence, too. See, for example, this .

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  4. Wilbur (7 comments) says:

    Sorry, my link got munged. It should have been: http://www.columbia.edu/~gc2286/documents/JoblessandWagelessRecoveries-July252012.pdf

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  5. SPC (5,772 comments) says:

    Is there any evidence – such as the amount of money supply – to show that there is a link between printing money and inflation?

    What is the link between money supply and rising world fuel and food prices?

    And besides, one of the largest inflationary impacts in recent times was from the amount of borrowing from banks to buy houses. This has led to rising house prices (not in the CPI) that led to rising consumer demand. That was inflationary – yet had nothing to do with printing money in New Zealand – more offshore credit expansion that allowed access to finance to buy local property.

    Also tax cuts at the top level combined with a low OCR has led to a rise in the local stock market – but this asset value inflation is also not in the CPI.

    There is a global credit expansion (QE) occuring at the moment – property prices are higher to wages because of this. This is not local printing of money.

    Our RB Governor does little about the level of inflow of foreign money as loans for property purchase – despite this being inflationary in areas outside of the CPI – until those making untaxed CG drive up consumer demand.

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  6. Reid (16,632 comments) says:

    Printing more money than strictly replacement is always a bad idea because to the extent it’s overdone: i.e. more than replacement of worn out bills, it devalues what all the dollars in circulation will currently buy. This is because the act of printing money affects money itself but the reason this is bad is because this change doesn’t arise from any commensurate increase in the value of the actual economic activity in the productive economy, upon which the value of the currency ultimately depends.

    I mean it’s nuts.

    The only reason the US is doing it is because it wants to inflate its way out of debt which is pissing off those countries who have trillion plus T-bill holdings and who have been dumping them and buying gold.

    But it’s quite easy to observe history and look at Zimbabwe and oh, the Weimar Republic, and etc etc etc.

    And this is what the Gweens want to do.

    And they’re proud of it.

    But the issue to me is fiat debt-based money. Unless currency has an intrinsic exchange rate it depends on net economic output for its value. When you tie it to something intrinsic like gold, you remove the volatility of measuring yourself against the world and exchange it for the less volatile movement of something traded globally that is less dependant on your economy and more a reflection of whatever the global economy is doing at the time. And this of course is not risk free but it’s more stable overall. Yes it’s out of our control but then again currently our currency is the 7th most traded in the world and you know why that is?

    Because it’s able to be played like a baby seal and big players can exact movements by their own actions so they can leverage it much easier than say the Aus dollar. So they play it, all the fucking time. Isn’t that annoying. And we can get rid of that by returning to the gold standard.

    And when you think about it, what value does it add having all those trading rooms around the world? What value does all of this extraordinarily profitable activity add to the net scheme of things apart from making a very small group of people extremely rich? Nothing, that’s what. So let’s not play that game anymore, it’s mental. Apparently some others think the same way.

    http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100022332/a-new-gold-standard-is-being-born/

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  7. bhudson (4,740 comments) says:

    And in line with the axiom that there is no such thing as a fee lunch, reducing unemployment through inflationary measures is really nothing more than a regressive redistribution of wealth.

    Inflation reduces the real value of workers’ wages and savings. Whatever they earn and whatever they may have saved is worth less. That reduced value is being used to fund employment of others – the workers and savers are subsidising the wages of the formerly unemployed by ‘giving up’ some of the value of their own wages and savings.

    It is ‘regressive’, as the parlance goes, because the reduction in value will represent a greater percentage of the income or savings of lower and middle income earners, than it will of the wealthy.

    @SPC, printing money is inflationary as money is a product like any other and its value is influenced by its supply and demand. The more of it there is, the less each unit will be worth. This is brought about not by a formal devaluation of the dollar, but by a general increase in prices responding to more money in the market.

    At least one of the failures of the Keynesian approach is that injecting money to increase aggregate demand will lead to increased prices (inflation) that will naturally reduce demand – thus threatening a continual cycle of an ever larger stimulus to try to lift aggregate demand, which is being suppressed by the inflationary effect of the stimulus, while prices continue to rise, and so on. (The problem being compounded and accelerated by continual demands to also increase wages to keep up with the inflation.)

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