Fuel tax cut may have kept inflation under 7%, says Grant Robertson

Thursday, 21 April 2022

Inflation is still on the rise, new figures confirm.

The Government may be able to take credit for keeping inflation under 7%, according to Finance Minister Grant Robertson.

He hit back at suggestions from National Party leader Christopher Luxon that loose policies might be making inflation worse, saying its spending was already “targeted”.

Tensions over inflation are on the rise after Stats NZ reported a 6.9% annual jump in the consumer price index which took inflation to a new 31-year high.

The inflation figure for the March quarter is a solid jump from the 5.9% annual rate measured in the December quarter but not quite as high as some economists feared.

* 'Perfect storm': Inflation due to hit 30-year high as cost of living soars

* Reserve Bank 'not in a great place' with inflation

Luxon said the Government had no plan to control inflation and said it would be putting “fuel on the fire” if it pushed ahead with a record $6 billion increase in annual spending in next month’s Budget.

The consumer price index (CPI) records changes in the price of hundreds of goods and services. (First published January 20, 2022)

Robertson responded that if people had criticisms of its spending “by all means let’s debate that”.

But the inflation situation was “fundamentally” being driven by global factors, he said.

“What I'd ask is what spending do people not want us to undertake?

“If you're thinking about the kinds of spending that a government might do that would be big enough to really have an impact on inflation, you're thinking about things like the wage subsidy scheme; is that what people are saying we shouldn't have done?”

Robertson said cuts to fuel taxes that began to take effect in mid-March would have had a material impact on inflation.

“I think it has potentially kept it under 7%,” he said.

But he acknowledged most economists did not now think inflation would peak before the current quarter ending in June.

Stats NZ reported that the prices of goods and services whose prices are essentially determined by international markets – so-called ‘tradable’ items which include commodities such as petrol – rose 8.5% over the year.

The rise in prices of non-tradable items, which economists usually assume can be better influenced by the Reserve Bank through monetary policies averaged 6%.

National Party leader Christopher Luxon says a 6% annual rise in the price of ‘non-tradable’ goods and services shows higher inflation is not just down to events overseas.

Luxon said the latter figure showed inflation was “not just an international story” and accused Labour of poor economic management.

Reserve Bank governor Adrian Orr appeared to give ammunition to the Opposition when he warned on Tuesday that the central bank would need help bringing down inflation, suggesting “more targeted, effective fiscal policies” would assist.

But Robertson said the Government believed it was doing exactly what Orr had been asking for.

“We're targeting our fiscal support to the people who are the most affected by inflationary increases.

“What the National Party is proposing is tax cuts that value those who earn the most. That is not targeted fiscal policy,” he said.

The Reserve Bank had forecast in February that inflation would come in at 6.6%.

But economists had been warning in more recent forecasts that they expected the rate to top 7% as the impact of Russia’s war on Ukraine on commodity prices, including petrol, began to bite.

Capital Economics economist Ben Udy said the actual figure was “broadly in line with the Reserve Bank’s expectations” and believed it increased the likelihood the central bank would only raise the official cash rate by 0.25%to 1.75% next month.

Concerns over rising inflation expectations prompted the Reserve Bank to raise the official cash rate to 1.5% last week.

But ANZ chief economist Sharon Zollner said that although the inflation rate was below the consensus market expectation of 7.1%, measures of core inflation continued to increase further above the Reserve Bank’s 1- 3% target range.

She continued to expect the Reserve Bank would raise the OCR by a further 50 basis points to 2% next month.

“Today’s data will firm the Reserve Bank’s resolve that they need to continue to rapidly raise interest rates to get ahead of the domestic inflation pulse,” she said.

Stats NZ said the biggest contributor to annual inflation had been the increased cost of rents, new houses and housing utilities.

The inflation figures do not measure changes in the price of existing homes.

The price of new homes, excluding land they are built on, rose 18% over the year.

Stats NZ prices manager Aaron Beck noted builders had been experiencing many supply-chain issues, higher labour costs, and that demand for new housing had also increased.

Higher prices for petrol and second-hand cars also boosted inflation.

The price of petrol ballooned by 32% over the year and was the biggest driver of inflation in the March quarter, Stats NZ said.

Energy Minister Megan Woods said ahead of the release of the inflation numbers that the Government was monitoring the fuel-price situation and indicated it could consider extending fuel tax breaks that were implemented in March and April.

Green Party finance spokeswoman Julie Anne Genter said inflation was not affecting everyone equally and “urgent action” was needed to soften the blow for people on the lowest incomes.

The solution was to ensure everyone had a “liveable income” by lifting benefits and Working for Families, introducing rent controls, making public transport fares free, and breaking-up the supermarket duopoly, she said.