Dual mandate duel: Nicola Willis and Barbara Edmond clash over inflation vs jobs focus for RBNZ
Sunday, 8 March 2026
OPINION: One of the rituals of Parliament is the “bridge run” that takes place between Tuesday and Thursday whenever the House is sitting.
Ministers make their way from their offices in the Beehive to the debating chamber, shortly before 2pm, and journalists have about 10 minutes to pull them over and ask them questions in a huddle on the “tiles”.
To the politicians’ credit, journos mostly get what they pay for, as it were.
Ask a politically loaded question to put a minister on the spot, and you’ll get a political sound-bite in response.
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But ask a genuine question about a policy or news development and you’ll usually get a considered and serious answer in return, including from Finance Minister Nicola Willis.
Or as serious as is possible within the strict time constraints of the ritual.
The reason for mentioning Willis is that she sometimes jiggles the format a bit and marches towards a huddle and delivers a brief diatribe on whatever may be on her mind that day, before taking questions.
That transpired on Tuesday, when she accused her Labour counterpart Barbara Edmonds of wanting to return the country’s monetary policy framework to that which “resulted in New Zealand’s highest period of inflation in recent history”.
“What she’s saying is she wants higher inflation,” Willis said.
Edmonds didn’t say exactly that, of course. What she had made explicit in a newspaper interview was the unsurprising fact that Labour was considering returning the Reserve Bank to a “dual mandate”.
That would see it once again charged with the goal of supporting “maximum sustainable employment” as well as price stability.
It’s debatable whether a return to the dual mandate that was in place between 2018 and 2023 would be a big deal in practice.
Being ordered to have regard to unemployment might result in the Reserve Bank taking more time, and being less aggressive in putting the brakes on the economy, if inflation moved out of bounds.
But the bank has maintained that it wouldn’t have set the Official Cash Rate at different levels than it has, under its varying remits, as they have see-sawed back and forth.
The main goal of monetary policy remains attempting to set the OCR so as to smooth out the ups and downs of the business cycle and that will continue regardless of how its remit is worded.
The issue underlying the debate on the dual mandate is whether we sometimes tend to get a bit too obsessed with inflation, though.
Having confidence in “money” is great.
Historians believe money emerged in something like its current form in or around 3000BC, when people in the Middle East began making indentations on clay tablets to tally debts. So inflation would presumably have been a bit awkward to manage then.
A switch back to bartering would be a pain in the neck now, when most of us are employed in white collar jobs. I, for one, wouldn’t relish popping down to New World to barter for my weekly grocery shop with an analysis piece on the political economy.
But it isn’t as easy as it might seem to make the case that a moderate level of inflation is always a bad thing — to argue, say, that inflation running at 5% is inherently worse than it being 2%.
Inflation may not treat everyone equally. It can have what are called “distributional” effects in the economy. Borrowers and wage earners may be more likely to benefit and people on fixed income to lose out.
But it doesn’t necessarily erode people’s standard of living, or mechanically create or destroy wealth, in aggregate, as money is a “merry-go round”.
When the price of a loaf of bread goes up from $5 to $6, people are paying an extra dollar, but someone — likely a combination of the workers who made it or the shareholders who own the bakery, or of its suppliers down the line — have those extra dollars to spend.
To condense a large volume of academic research on inflation into a couple of sentences, the consensus is there’s no strong relationship between economic growth and inflation in developed economies when annual inflation is still in single digits.
There is a reason, also, that the Reserve Bank doesn’t target a 0% inflation rate, but rather the mid-point of a 1% to 3% target band.
It is hard for the relative prices of different goods and services to adjust as they need to over time with the monetary lid very tightly sealed.
It also follows that during times when more adjustments are needed, for example due to underlying price pressures on the likes of rates or insurance, it may make sense to loosen the reins.
If moderate inflation deserves a bad rap, it is generally because it is frequently a symptom of an economic problem; of a circumstance arising where “too much money is chasing too few goods”.
Oil shocks, wars that disrupt supply chains and Covid have all been associated with higher inflation and hard times.
But it was the shocks, the disruption and the pandemic itself that resulted in drops to the standard of living. Blaming inflation for those tougher times would be like blaming a sneeze for a cold.
Bankers will point out it is helpful for commerce if the value of a unit of money is predictable over time, but it is “predictability” that is the key word there and the benefits of predictability aren’t limited to only inflation.
Talk to Reserve Bank chief economist Paul Conway and he will argue that the main reason that it is desirable to keep inflation within a low band is that it can tend to be more unpredictable when it reaches a higher rate.
The bank’s new governor, Anna Breman, made the same point when interviewed by The Post last month.
“There is a discussion around this. Some people might think we should have a higher inflation target, maybe 5%, but with a higher inflation target, you tend to get more volatility,” Breman said.
“There are countries that do it a bit differently; have a target of 2.5% or 3% instead of 2%. I think there is good point in trying to keep to the target that you have, just because it gives that predictability to households and firms.”
In other words, the benefit of keeping the existing mandate is simply that it is the mandate that people are used to.
But Breman did also appear to accept that we might hope for monetary policy thinking to develop over the next 100 years.
Regrettably, the question of how, and in what way, isn’t one that is well-suited to a snatched conversation on the tiles.
Any discussion of monetary policy settings by ministers there, will usually fall into the category of the unedifying political sound bite.