Inflation not embedded. Yet.

Highest inflation rate since 1987 driven by house building costs, rents, food and petrol; No signs yet of prices-to-wages spiral; Jury still out on whether inflation is 'transitional'

TLDR & TLDL: Aotearoa-New Zealand just reported its highest quarterly consumer price inflation rate since the ‘bad old days’ of 1987, which was an era before the creation of the Reserve Bank Act (1989) effectively outlawed these sorts of inflation rates.

So should the Reserve Bank ‘panic’ and fire interest rates much higher and faster than it is already? And was the September quarter’s 2.2% rise from the June quarter and 4.9% from a year ago a sign of a structural shift higher in inflation to some sort of 1970s and 1980s style stagflationary spiral?

Housing costs, both rent and the cost of building a new (suburban) house, were the biggest contributors to the surge in annual inflation, followed by transport costs, powered by a rise in petrol costs to pay for our suburban driving. Photo: Lynn Grieveson/TheKaka

My short answers are no and no because we have yet to see a wage inflation breakout that would indicate a fundamental shift towards a wages-driven surge in prices, which should be …

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