Inflation fight futile without rising productivity

The huge rise in government spending in recent years, and the added regulations imposed on business has positioned New Zealand poorly to cope with the rapid rise of food and fuel prices, the Employers & Manufacturers Association (Northern).

“The Reserve Bank is obliged to keep interest rates high to combat inflation though it depresses our economy,” said Alasdair Thompson, EMA’s chief executive.

“But the inflation its fighting is brought about by the costs imposed by central and local government as well as the second round effects from high international petrol and food costs.

“It seems obvious to anyone that prices will inevitably go up when international demand exceeds supply - for New Zealand to fight this is futile.

“It is also damaging though necessary to fight rising government expenditure with high interest rates; the Reserve Bank cannot be held responsible for wasteful government spending.

“Meanwhile the high NZ dollar induced by high interest rates is a major factor driving our businesses offshore and ironically that will get inflation down by putting people out of work.

“Once people are forced to stop all discretionary spending, and our retailers and manufacturing suppliers are near bankruptcy, inflation will come down along with our standard of living.

“Ultimately the government will be held accountable for this, not the Reserve Bank.”