In this week’s ‘hoon’ (the collective noun for The Kākā), Interest.co.nz’s Jenee Tibshraeny and I take a lap around the week's events in the political economy, including strong CPI figures, a surprisingly hawkish RBNZ view and REINZ house price data.
Will the inflation stick?
The big debate in the global economy right now is whether the inflation surge we’re seeing all over the world because of Covid-related logistics and labour shortages is temporary, or something permanent. The US Federal Reserve, the Reserve Bank of Australia and the European Central Bank currently say it’s temporary and they’ll keep rates at or near zero and keep printing.
Our Reserve Bank decided this week to start tightening monetary policy and economists are betting on the OCR rising from 0.25% to around 2% over the next 18 months or so, which would see fixed mortgage rates rise from around 2% now to more like 4.5%. Here’s more in my Thursday Dawn Chorus.
The problem with incrementalism
This week the Government offered another $2.5b in carrots to councils to join its Three Waters reform programme. I argue the Government’s bit-by-bit approach is symptomatic of an incrementalism that just isn’t going to work in the face of our climate and housing affordability emergencies.
So far the big councils (Auckland, Christchurch) are opposed, and the Government may yet to have to legislate over their heads. That won’t please the Groundswell protestors. Here’s more in Friday’s Dawn Chorus.
Unsustainable house prices
We got fresh evidence from the REINZ this week that house price inflation is still running too hot, and that the level of prices is unsustainable, let alone unaffordable.
REINZ’s sales and price figures for June showed the monthly inflation rate slowing marginally to 0.9% nationally, but still at 29.8% from a year ago. Annualised inflation rates over the last three months since the Government’s March 23 tax deductability shock have still averaged over 10%, albeit down from over 20% in the previous three months.
The numbers are shocking in some places. The House Price index for Wellington City rose 46.2% in the last year to June. The index for Palmerston North rose 61.3% in the last year. The average compounding house price inflation rate out of Auckland in the last five years has been 12.3%. That rate means a doubling of house prices every six years. See more in Wednesday’s Dawn Chorus.
Carbon import taxes are coming
The European Union unveiled a raft of measures this week to accelerate its move to carbon zero and in particular introduce new taxes and levies for shipping, airlines and importers of steel, cement, aluminium and fertiliser from countries it deems not to be keeping up its side of the climate change bargain.
In particular, it unveiled a ‘Carbon Border Adjustment Mechanism’ or CBAM, which forces importers to buy credits linked to an expanded emissions trading scheme. Prices for Europe’s credits have risen sharply in recent weeks ahead of the announcement. They were at €59/tonne this week, which is NZ$89/tonne at current exchange rates.
New Zealand’s carbon credits are trading at NZ$47/tonne and have risen from around NZ$36/tonne in the last six weeks since the release of the Climate Commission’s final carbon budgets report. It is approaching its cap for 2021 of NZ$50/tonne, at which the Government has to pump more credits into the market under existing legislation.
Aotearoa-NZ is way behind the curve on reducing its emissions and adopting politically difficult policies that would reduce our emissions. The Government will have to respond to the Climate Commission’s budgets before the end of the year. But the pressure against the ‘ute tax’ is already building with big protests by the ‘Groundswell’ rural protest group on Friday. And we burned a million tonnes of coal last year. See more in Thursday’s Dawn Chorus.
Other places I’ve written and broadcast this week
Until next week.
Ka kite ano
Bernard
The week that was for the week's end