National’s Finance Spokeswoman Nicola Willis says a double-whammy of mixed data published on Wednesday morning shows New Zealand incomes are effectively going backwards, and households are in danger of being swamped by rising interest rates.
She laid some of the blame at the feet of Finance Minister Grant Robertson, and alluded to the role of Reserve Bank Governor Adrian Orr for his role in pumping up house prices.
“Looking around the world, in the US, the Fed [the US central bank] has been ready to admit that it should have moved faster on lifting interest rates,” Willis said.
“I note Adrian Orr and Grant Robertson have something in common which is that they don’t like to show contrition,” she said.
Stats NZ today published messy unemployment data. There was some good news in that the unemployment rate remained at record low of 3.2 per cent.
But there was bad news for Labour in the ongoing political battle over inflation.
Wages only rose 3 per cent in the past year, nearly half the rate of CPI inflation, which was 6.9 per cent over the same period, meaning costs were rising at twice the rate of wages.
Willis said it was the widest gap between the change in costs and the change in wages since 1992.
“Wages are failing to keep up with increasing prices. With the CPI at 6.9 per cent, prices are now rising more than twice as fast as wages,” Willis said.
Willis said the figures showed the “cost of living crisis is really biting and Kiwis are slipping further behind each week as their wages struggle to keep up with rising prices”.
Robertson said the results were positive in light of the pressures heaped on the economy by Russia’s invasion of Ukraine and the Omicron outbreak.
He noted that employment rose by 2,000 in the quarter, driven by fulltime employment and the total number of people in work is now 114,000 above where it was in the December 2019 quarter before Covid.
“This is a very positive result in what has been a challenging environment. It is a sign of confidence in the economy and the Government’s strong health response and sound economic management,” Robertson said.
He said unemployment was still ahead of other, comparable international figures.
“On comparable measures, New Zealand’s 3.2 per cent unemployment rate stands against 4 per cent in Australia, 3.8 per cent in the United Kingdom and the United States and 5.8 per cent in Canada. The OECD average is 5.2 per cent,” he said.
Willis shot back at Robertson, saying it was not enough to blame rising costs on overseas factors.
“It is not enough for the Minister of Finance to ascribe [inflation] to global factors,” Willis said.
She said Robertson should show New Zealanders a “clear plan to put a lid on inflation”, which would include relieving costs from the economy, reducing supply bottlenecks and taking a “disciplined approach to spending” when it came to this year’s Budget”.
The Government will announce a record $6 billion in new spending on Budget day later this month.
Robertson defended the current approach to spending,saying the Government’s debt ceiling, announced on Tuesday, would control spending.
“Our new fiscal rules will ensure we are taking a balanced approach and controlling spending and targeting at those who need it most, keeping a lid on debt and able to make important investments in infrastructure,” Robertson said.
He had some back-up in the form of Orr, who told a press conference this morning that the fiscal impulse, which measures the inflationary effects of Government spending, was currently negative, showing the effect of Government spending was contractionary, relative to previous years.
Orr was speaking about the Financial Stability Report, which is a biannual health check on the state of the financial system.
This report had a silver lining in that it said the financial system was broadly healthy – however, the thrust was gloomy.
It warned of a “sharp correction” to house prices being a plausible scenario, although a “gradual decline” in house prices was more desirable. The bank said prices remained above “sustainable”.
The bank added that “recent buyers with limited equity are particularly vulnerable to house price declines”.
“Furthermore, a large fall in house prices would significantly reduce housing wealth and could lead to a contraction in consumer spending”.
Willis said the Bank’s report would “worry many households”, particularly those who had recently bought homes.
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