Inf lation only low if you can afford a few treats

mean, a pricing manager summed it up succinctly in the official release: ‘‘New Zealanders are paying more to keep their homes running.’’

This story is hardly a new one. For several years Statistics NZ has been publishing analysis of the inflation figures, estimating where the impact was hitting, focusing on high and low-income households as well as Ma¯ ori and pensioners.

In blunt terms, inflation has been much higher for those on lower incomes than it has been on those on higher incomes. Globalisation has made many goods and services much cheaper, but in areas of little competition, prices have continued to rise.

This now appears to be coming to a head. While the industrial action seen in recent weeks could be dismissed as isolated gripes, there are expectations that there is more to come.

It is telling that even bank economists are validating what appears to be growing discontent among lower-paid workers. ‘‘It’s been pretty tough going for a lot of those people at the lower end of the income scale,’’ ASB senior economist Mark Smith said in recent days. ‘‘The New Zealand economy’s doing very well, but a lot of people are asking, ‘Where’s the payoff for me?’ ’’

Smith’s comments were in relation to the bank’s expectation that wage inflation will in the next few years reach its highest level in a decade, driven by Government moves on minimum wage and industry-wide pay agreements. But when bank economists join the debate it suggests they see the issue as more widespread than we have seen so far.

Expectations are clearly high, with the New Zealand Nurses Organisation unable to convince its membership to accept the Government’s offer. After persuading members to accept more modest increases over the past decade, unions may be facing something of a backlash.

Acting Prime Minister Winston Peters has delivered an almost pleading message to nurses and other public sector workers that it will take more than a single Budget to address issues he has sought to blame on the former government.

The Government is in a doubly difficult position, having spent years in Opposition building expectations. First and foremost it has self-imposed Budget rules it is determined to keep to and which look achievable right now, but are based on the Treasury’s hope that the economy continues to perform. Whether there is any justification for the recent fall in business confidence, if wage expectations spin out of control then the mood may darken further.

As much as it might like to throw money at the problem, doing so may simply make that problem worse over time.