Watch­ing ‘Foot­sie’ a mi­nor­ity sport

The Hastings Mail - - CONVERSATIONS - GOR­DON CAMP­BELL

The Dow Jones, the Nas­daq, the ‘‘Foot­sie’’, the Nikkei … it might as well be a weather re­port from Mars.

Given that only about 10 per cent of New Zealan­ders ever in­vest in the share­mar­ket, the me­dia air time de­voted to tiny share price fluc­tu­a­tions must make this the na­tion’s most keenly cov­ered mi­nor­ity sport.

Should the pub­lic know (and care) more about the work­ings of the share­mar­ket? Cer­tainly, a lot of me­dia ex­cite­ment was gen­er­ated by the US share volatil­ity last week. Yet the state of the US share­mar­ket – huge ex­cep­tions aside, like the 1929 crash and the 2008 Global Fi­nan­cial Cri­sis – has next to noth­ing to do with the state of the US econ­omy, let alone the lo­cal econ­omy. To put it mildly, the share­mar­ket’s pulse rate is sim­ply not a re­li­able in­dex of eco­nomic out­comes, the fate of US pres­i­dents, or of our per­sonal well­be­ing.

Re­port­edly, the re­cent, brief US plunge – such as it was – had been trig­gered by fears that the long pe­riod of low in­fla­tion and low in­ter­est rates might be end­ing. This con­clu­sion was based on strong US em­ploy­ment fig­ures, which car­ried a po­ten­tial for skills and labour short­ages, wage de­mands and ris­ing in­fla­tion as a re­sult. That’s al­most the ex­act op­po­site of what’s hap­pen­ing in New Zealand.

Yes, our un­em­ploy­ment rate fell close to his­toric lows dur­ing the De­cem­ber 2017 quar­ter. Even so, wage growth re­mains slug­gish, in­fla­tion is be­low mar­ket pre­dic­tions and, ac­cord­ing to the Sta­tis­tics Depart­ment, some 340,000 New Zealan­ders want to be work­ing longer hours than they’re cur­rently do­ing. If any­thing, our econ­omy is un­der­cooked, not over-heat­ing. There is sim­ply no sign of wage-gen­er­ated in­fla­tion wash­ing up here any time soon.

That’s what made last week’s of­fi­cial state­ment by act­ing Re­serve Bank gover­nor Grant Spencer some­what puz­zling. On one hand, Spencer con­ceded the lack of do­mes­ti­cally driven in­fla­tion­ary pres­sures. More­over, if in­fla­tion did rise longer term, Spencer ex­plained, this would be im­ported in­fla­tion, as other coun­tries raised their in­ter­est rates, our dol­lar lost ground, and the cost of im­ports (eg petrol) rose ac­cord­ingly. Even so, this would still put in­fla­tion only in the mid­point of the Bank’s ac­cept­able tar­get range.

Log­i­cally then, into 2019, could mort­gage own­ers feel as­sured that in­ter­est rates would re­main much the same? Maybe, but hold on. Be­cause Spencer also sug­gested the next in­ter­est rate move­ment would be up­wards, while not rul­ing out that it could also be down­wards. ‘‘We have seen [in­fla­tion] sur­prise to the down­side and if that con­tin­ued, then it is pos­si­ble that we can see in­ter­est rate re­duc­tions.’’

The Re­serve Bank gover­nor is sup­posed to shed clar­ity and pro­vide guid­ance on such mat­ters. Yet it was as if this highly paid eco­nomic ste­ward was say­ing the traf­fic lights down the road could be red or green. A hike in in­ter­est rates would be the next likely step, de­spite there be­ing no do­mes­ti­cally gen­er­ated rea­son for tak­ing it, and de­spite the im­pact such a step would have on lo­cal firms, mort­gage hold­ers and ev­ery­day con­sumers. If this is what passes for wis­dom, it is easy to see why the or­di­nary pub­lic try not to pay much at­ten­tion to the busi­ness news.

‘‘If any­thing, our econ­omy is un­der­cooked, not over­heat­ing.’’

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