Long winter ahead as inflation bites Labour
On Sunday, out of the blue, the Government announced a press conference. Details were scant, Finance Minister Grant Robertson would be fronting.
It turned out to be completely unremarkable and unsurprising– the Government would extend the duration of cuts to the fuel excise and road user charges and the halving of public transport fares.
There was no doubt this was always going to happen, but it may have been some small relief for people filling up their tanks.
Clearly designed for the 6pm news, the announcement preceded the next day’s inflation numbers, which showed that the general level of prices had increased over the previous quarter to an annual rate of 7.3%.
In the three weeks that Parliament has been in recess, not much has change domestically and, if anything, have got just a little bit worse – except for the jobless rate, which remains low. Inflation has officially gone up.
The health system is getting creakier under the strain of winter illness – Covid, flu and the usual uptick in winter ailments.
The conflagration of Covid, flu and school holidays seems to have left many businesses and organisations scrambling. Ramraids have continued in Auckland.
The good news is that it appears the Covid peak may have passed, which will hopefully start to bring relief to both the health system and denuded workplaces up and down the land.
And while there is no doubt that there is a lot more pressure on the health system this year, the fact that there are also numbers published daily about people going into emergency departments is an information dynamic that did not exist before the pandemic.
But for the Government, there will be a rough few months ahead.
Winter is always a tough period, but the steady accumulation of issues this time around has not been seen in New Zealand for a long time.
Inflation, in particular, has not been at these levels in more than 30 years. It is, as an old Reserve Bank video calls it, a thief in your wallet.
The Government has continually banked on it easing this year, prices rises becoming less pronounced, tourism slowly returning and the disruptions caused by Covid-19 becoming fewer and further between.
But the key constraint on the economy continues to be labour. There just doesn’t appear to be enough spare capacity to keep growth ticking along healthily.
Many businesses can’t find enough workers to operate at full capacity. The Government is stepping up its state-house building programme, and is in the throes of doing other big infrastructure projects. But there isn’t enough labour.
And Labour’s new immigration settings appear unlikely to do much to ameliorate that. ACT released a cost-ofliving package in Wellington on Thursday, and while it continued that party’s usual prescriptions of less regulation and tax, it also leaned hard on the fact that it is too difficult to get both workers and capital into the country.
There is good reason for this: since being in office, Labour has effectively cracked down on both, arguing that there are good and bad sorts of foreign investment and that New Zealand is interested only in the good sort; and that, similarly, there are skills New Zealand needs, skills it doesn’t and businesses should prove they’ve tried and exhausted options to hire locals first.
The broader economic, supply chain and global inflationary pressures on New Zealand are also in a holding pattern. China is still very unpredictable when it comes to Covid-19, and the spectre of lockdowns continues to be felt. Meanwhile, the war in Ukraine does not look likely to end any time soon.
While global oil prices have dropped to a 12-week low, that appears to have been sparked more by fears of a global recession and the US Federal Reserve taking a tougher stance on inflation – currently running at 9.1% – weighing on demand for the commodity.
Partly that is because the war continues to appear to go poorly for Russia. It has been reported that the Wagner Group – a name given for a network of mercenaries used by the Russian state – is now trying to incentivise convicts to fight.
Historically, enlisting convicts, while definitely a form of expendable soldiery, does not yield great results. Discipline and following orders, on which good military forces operate, do not tend to be the strong suit of convicts.
The West continues to support Ukraine, and the US government is continuing to slowly increase the arms and training given to the Ukrainians.
Russian President Vladimir Putin continues to refer to the war as a ‘‘special military operation’’ – in part because declaring a war, which would also unleash massive resources of the state, could create significant political problems for the stability of his regime.
In other words, the pressures created by the war are likely to persist, and should be viewed as semi-permanent. Only a couple of weeks ago, Putin was reported as saying that the conflict was ‘‘the beginning of a cardinal breakdown of the American-led world order’’.
In the meantime, it is not a great time to be in government, basically anywhere. While
Labour will continue to push through with its phalanx of reforms to Three Waters, the health system and resource management among others, the economy remains the main game.
All the opposition parties (the Greens included) will find different ways to work the cost of living into their political stories as Parliament returns next week.
The cost-of-living payment for those earning up to $70,000, promised in the Budget, will start going out on August 1.
To a significant degree, the Government will just have to grin and bear it over the next few months.
But whether it has the political agility to change the economic conversation will shape politics for the rest of the year.