Photo: RNZ / Samuel Rillstone
Nicola Willis is calling Labour’s willingness to discuss increasing the Reserve Bank’s inflation target “insane economic illiteracy”. Labour says that’s a “massive misrepresentation” of their stance.
Labour’s finance spokesperson Barbara Edmonds this morning said the party was “open to a discussion” about lifting the 2 percent midpoint of the RBNZ’s target to 2.5 percent.
The specific requirement for the Reserve Bank is to target getting inflation between 1 percent and 3 percent. Australia’s target midpoint is 2.5 percent, with the band being between 2 and 3 percent.
Westpac chief economist Kelly Eckhold had last week raised the idea as one of several options the next Reserve Bank Governor could consider, acknowledging it was likely to be contentious.
“We’ve had a target at 2 percent for a very long time going over quite a few cycles now, but we’re really not able to consistently hit 2 percent,” Eckhold said.
“What tends to happen is that sometimes inflation is a little bit below … but when it goes above, it spends a lot more time above and by further above.”
He said it would not matter much for affecting growth or unemployment, and would not increase inflation overall – presumably because the upper bounds of the band would remain the same.
Edmonds said she had seen those comments.
“I’ve also seen some comments from [economic commentators] Michael Reddell, also Cameron Bagrie had been discussing it last year. I think it’s actually a debate and a discussion that probably does need to be had.
“I’d be open to hearing from other economists as well as to what they think … let’s see where that conversation gets to.”
But Willis said it was “just insane economic illiteracy”.
“They are literally saying they want to target higher price increases across the economy – that means a higher cost of living for every New Zealander.
“It’s very hard to take Labour seriously on the cost of living when they’re literally saying they’re prepared to target a higher inflation rate … it’s a good reminder to new Zealanders that you shouldn’t trust Labour on the cost of living.”
Chris Hipkins says Labour hasn’t indicated it’s reviewing this particular part of its policy.
Photo: RNZ / Samuel Rillstone
Labour leader Chris Hipkins, however, said Willis claiming such a shift was Labour Party policy was “a massive misrepresentation of what Barb has said”.
“Barb has said that she’s interested in hearing from the economists. That isn’t to say that the Labour Party is considering increasing the rate.
“A finance spokesperson saying that they’re interested in hearing from economists, is a finance spokesperson being a good finance spokesperson. We certainly haven’t indicated that the Labour Party is reviewing this particular part of our policy.”
Willis said Hipkins would have been “much better to overrule his finance spokesperson.”
She said Hipkins “probably doesn’t understand” that increasing the inflation target would mean increased living costs, “and that’s the real worry with Labour, they don’t understand fundamental economics”.
The latest Consumer Price Index inflation figures for the 12 months to June are at 2.7 percent, within the target band.
Asked earlier in the day about the prospect – before Labour had said it was open to exploring the idea – Willis had said it was “not on our agenda”.
“I did like the fact that Westpac pointed out that over the next few years, they expect the New Zealand economy will be growing faster than Australia,” she said.
“Actually, low inflation is the key to keeping price increases down. And essentially, what Westpac is arguing for is a high level of inflation. That’s a hi gh level of price increases for New Zealanders, that’s a higher cost of living.”
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