Speaker 1: Kiota.
Speaker 2: I'm Chelsea Daniels and this is the Front Page, a
Speaker 2: daily podcast presented by the New Zealand Herald. Inflation has
Speaker 2: risen even further. The latest stats and Z figures show
Speaker 2: inflation reached three percent in the year to September. Economists
Speaker 2: had it tipped to hit the top end of the
Speaker 2: Reserve Bank's target band of between one and three percent,
Speaker 2: but some say the period of circa three percent.
Speaker 3: Could be short lived.
Speaker 2: At the same time, labor has broken its silence on
Speaker 2: what it thinks will help the economy today on the
Speaker 2: front page, ends ed Herald Business Editor at Large Liam
Speaker 2: dan Is with us to break down what all of
Speaker 2: this means for you and your wallet. So, Liam, the
Speaker 2: consumers price index increased three percent in the twelve months
Speaker 2: to September. What has contributed to this increase?
Speaker 3: Yeah, so well, a few really basic things actually that
Speaker 3: will make have made it feel like it's a lot
Speaker 3: worse than three percent. So power prices is the real headline.
Speaker 3: Eleven point three percent I think for the annual rate.
Speaker 3: That was the highest annual increase we've had in New
Speaker 3: Zealand since nineteen eighty nine, so thirty six years. So
Speaker 3: that people really felt that. I mean, bear in mind
Speaker 3: that we've been through this. This is stuff that we've
Speaker 3: already had the headlines of people complaining about the power
Speaker 3: prices and we're just now counting the costs. But we
Speaker 3: had rates up eight point eight percent across the board roughly,
Speaker 3: and they tend to get counted once a year in
Speaker 3: the September quarter, so that's when we see them contribute.
Speaker 1: They're actually were up.
Speaker 3: Twelve something twelve percent the year earlier, but that's still
Speaker 3: a lot. It's still a high increase. And food prices,
Speaker 3: I think we're up four point six percent for the year,
Speaker 3: so that's still ahead of the three percent. People obviously
Speaker 3: have been feeling that with dairy prices, butter beef, some
Speaker 3: of those things that are getting good export dollars for
Speaker 3: New Zealand but are making it painful for shoppers and
Speaker 3: for consumers in the short term. So when you look
Speaker 3: at those three things, they're sort of unavoidable basics for
Speaker 3: a lot of people, especially the power and the food,
Speaker 3: and so yeah, that is a problem, but also it's
Speaker 3: sort of seen by the Reserve Bank is sort of
Speaker 3: a shorter term thing. So I think that three percent
Speaker 3: number has landed where it was largely expected to be
Speaker 3: and shouldn't cause too much problem for the Reserve Bank
Speaker 3: for those looking to hopefully see another interest rate cut.
Speaker 2: Yeah, I mean I saw economists were kind of across
Speaker 2: the board saying it was going to reach that top
Speaker 2: end of the higher bracket that the Reserve wants to
Speaker 2: kind of keep it into. Are you surprised that it's
Speaker 2: not over three percent, to be honest.
Speaker 1: Yeah, it could have been. I mean.
Speaker 3: The other thing is, you know, those power prices. We
Speaker 3: had a high wholesale price, there was weather conditions, but
Speaker 3: we also had a thing that comes through. They do
Speaker 3: a sort of a regulated price increase based on power
Speaker 3: distribution costs and that comes through every five years. So
Speaker 3: that's another one often there. So there's a reasonable you know,
Speaker 3: there's a bit of an increase in tradable inflation, what
Speaker 3: they call tradable inflation, which is those things that we
Speaker 3: don't have much control over in the economy, food and
Speaker 3: power and stuff, but non tradable which is in the
Speaker 3: core of the economy, services, wages, what we're paying each other,
Speaker 3: that is coming down. I mean, that's always a little
Speaker 3: bit higher anyway, but it is coming down quite sharply
Speaker 3: because the economy has been in such bad shape. So
Speaker 3: I think economists could see that the things that push
Speaker 3: prices down, recessionary forces that push prices down are sort
Speaker 3: of happening. So I would say they're fairly confident that
Speaker 3: this will be the peak of this cycle of inflation.
Speaker 2: In terms of how much aren't inflation is imported versus
Speaker 2: domestically generated. What we would you say.
Speaker 3: To that, Well, that that is that split non tradable
Speaker 3: and tradeable. So non tradable inflation tends to run a
Speaker 3: bit higher, but that is coming off tradeable inflation, the
Speaker 3: important inflation. We've had a pretty good year last year
Speaker 3: on that, and that's come back with the food prices
Speaker 3: and things, and so I think, but that some of
Speaker 3: that tradeable inflation. I know we've got to be careful
Speaker 3: because we tried to look through it after COVID and
Speaker 3: it all exploded with inflation keeping on going and going.
Speaker 3: But generally the Reserve Bank does look through that a
Speaker 3: bit more because those are those international prices that are volatile.
Speaker 3: Petrols and obvious one, but food, cobodity prices and some
Speaker 3: of those other imports and things. They go up and
Speaker 3: down a lot, and it would include power prices, and
Speaker 3: that is some means that the Reserve Bank can ignore
Speaker 3: those to some extent and it focuses on something called
Speaker 3: core inflation, which is a measure of inflation where the
Speaker 3: extremes cut off and looking at what it's how it's
Speaker 3: tracking over the long term or medium to long term,
Speaker 3: and they'll be more comfortable with.
Speaker 2: That, right, so the Reserve Bank doesn't seem too spooked
Speaker 2: over there. Should we see another OCR cut next month?
Speaker 1: Yeah, I think we should.
Speaker 3: I think we probably will, whether that's it, and you know,
Speaker 3: if the economy, you know, continues to sort of struggle
Speaker 3: to get going and the recovery hasn't hasn't taken off,
Speaker 3: we might Some economists see some risk of another cut
Speaker 3: maybe in February, or that the Reserve Bank might do
Speaker 3: fifty basis points in November, but.
Speaker 1: I don't know.
Speaker 3: I think there are some signs that it's things are
Speaker 3: starting to turn. A lot of the bad news is
Speaker 3: in the rear vision mirror. It's just the way we
Speaker 3: collect data, so we're seeing it at the tail end.
Speaker 3: You know, unemployment will rise probably in the next lot
Speaker 3: of stats, and it will be ugly as well, so
Speaker 3: you know it's a line call. But the Reserve Bank's
Speaker 3: primary job now single mandate, is to look at inflation.
Speaker 3: So I think probably one more cut and done, and
Speaker 3: they should probably signal to New Zealanders that they feel
Speaker 3: they're done, because that will encourage New Zealanders to lock
Speaker 3: in their interest rates and actually take some of the
Speaker 3: savings and we can all move forward a bit.
Speaker 4: Well, inflation is at three percent, it's within the band
Speaker 4: of the Reserve Bank. Under labor it was at seven
Speaker 4: point three percent, So we have broad inflation down and
Speaker 4: just under eighty months or eighty months two years, and
Speaker 4: that's making a big difference if you care about working
Speaker 4: people and who are doing it really tough. You actually
Speaker 4: met an economy well, and you make sure you get
Speaker 4: spending under controls, so you get inflation under controls, so
Speaker 4: you get interest rates down. That's exactly the path that
Speaker 4: we've been putting in place. So yeah, they wreck the economy.
Speaker 1: Let's be clear.
Speaker 4: They just spent more, tax more, borrowed more, and they'll
Speaker 4: continue to do more of that going forward. But that
Speaker 4: is what caused the pain and suffering that New Zealanders
Speaker 4: are experiencing up and down this country.
Speaker 2: When everyday New Zealand is here that inflation is at
Speaker 2: the top of the target range, what does that actually
Speaker 2: mean for them day to day.
Speaker 3: Well, it's all about those basics, the food and power, rents,
Speaker 3: I mean, rents was actually quite promising. Rents had dropped
Speaker 3: to two point six percent annual increase and if you
Speaker 3: look at it what's happening month or month, it's really
Speaker 3: almost flat to zero. There are parts of the country
Speaker 3: where rents will be coming down, so that's moving with
Speaker 3: the property market and with mortgage rates coming down and
Speaker 3: house prices being subdued. But yeah, I think the trouble
Speaker 3: is for New Zealanders who spend most of their income
Speaker 3: to live, they feel inflation a lot more acutely.
Speaker 1: So if you're if you've.
Speaker 3: Got a lot of money and you've got a lot
Speaker 3: of discretion around you know, most of your spending and
Speaker 3: your core living expenses are only thirty forty fifty percent
Speaker 3: of your total income, then it doesn't matter if it
Speaker 3: goes up three percent or five percent. You've still got
Speaker 3: all this discretion at the top end. But if you're
Speaker 3: spending all your money on living, and particularly if those
Speaker 3: basics have gone up by more than three percent, you know,
Speaker 3: you feel it completely. You feel all the inflation, and
Speaker 3: so it hurts poorer people harder. And look, I think
Speaker 3: New Zealanders more or less didn't really get over the
Speaker 3: inflation shop post COVID. We moved pretty quickly into a
Speaker 3: period of higher dairy prices and meat prices and things.
Speaker 3: And so you know, when you hear New Zealander is
Speaker 3: talking about it, a lot of people still feel like
Speaker 3: we've just had this one long cost of living crisis.
Speaker 2: Do you think the Reserve Bank's current approach strikes the
Speaker 2: right balance between controlling inflation but then also supporting growth.
Speaker 1: I think so.
Speaker 3: I mean, there's an argument that they've been a bit
Speaker 3: slow to get interest rates down. The difficulty is they
Speaker 3: do have a single mandate. They've got a single target.
Speaker 3: The government changed that they used to have a target
Speaker 3: that have a mandate that said you should weigh up
Speaker 3: unemployment and inflation and consider those things. I mean, all
Speaker 3: central banks will consider the big picture. But then if
Speaker 3: your number one job is inflation, you can't take the
Speaker 3: risk that it goes above three percent and becomes embedded
Speaker 3: and gets hard.
Speaker 1: You know, it's hard to.
Speaker 3: Get down and I think central banks around the world
Speaker 3: are a little bit feeling a little bit shell shopped
Speaker 3: after the inflation that we had post COVID when it
Speaker 3: got up to seven nine percent and all that stuff,
Speaker 3: and it got away on us, and they do not
Speaker 3: want to have to go through that kind of cycle
Speaker 3: again where we're having to sort of do things to
Speaker 3: get on top of inflation. So they just had to
Speaker 3: be a bit cautious, unfortunately, and they couldn't just sort
Speaker 3: of slash and burn. But it's looking I think, despite
Speaker 3: this number, in some ways, it's looking a bit safer
Speaker 3: for them.
Speaker 2: You're always so optimistic, though you always try and stay optimistic.
Speaker 2: I mean, realistically, is twenty twenty six going to be
Speaker 2: better or are we still riding the wave up into
Speaker 2: the end of twenty twenty six twenty and then entering
Speaker 2: twenty twenty seven.
Speaker 3: Well it gets a bit painful, actually, because I try
Speaker 3: to be optimistic, but it's just taking so long.
Speaker 1: Even this ra all's going to preak.
Speaker 3: Yeah, and you know you'll see my columns will swing
Speaker 3: between pessimism and optimism. But I think it is the
Speaker 3: conditions are all in place. Interest rates are low enough
Speaker 3: now to start stimulating the economy. There is all that
Speaker 3: export money coming in from the dairy industry, the meat industry,
Speaker 3: Kiwi fruit, even tourism is starting to pick up a bit.
Speaker 3: It's sort of almost back at pre COVID levels, which
Speaker 3: was a you know, a pretty good earner for the country.
Speaker 3: So those things really ought to shift the economy. There's
Speaker 3: a big deficit in confidence, you know, people are businesses
Speaker 3: are ware of investing, people are shell shocked.
Speaker 1: I think.
Speaker 3: Unfortunately, the lagging statistics are things like the jobs, labor
Speaker 3: market liquidations. You know, you're going to still see negative headlines,
Speaker 3: You're going to see more liquidations of businesses.
Speaker 1: Unfortunately, you're going.
Speaker 3: To see more layoffs and rising unemployment, and that will
Speaker 3: sort of keep a dampner on things probably into twenty
Speaker 3: twenty six, just because we won't get statistics you know,
Speaker 3: through for the well if unemployment peaks early next year,
Speaker 3: we won't see those statistics till the middle of next year.
Speaker 3: And I think that's really what's you know, the cost
Speaker 3: of living is one stress, and then the other one
Speaker 3: is people not being secure in their jobs, and so
Speaker 3: people need to be secure in their jobs to start
Speaker 3: spending because the money coming back through lower mortgage rates,
Speaker 3: is going into savings and paying down mortgage while people
Speaker 3: are worry that their earnings might not be around where
Speaker 3: they want them. So it's a slow thing to get
Speaker 3: the momentum rolling and get the confidence back.
Speaker 1: But yeah, I think it will happen.
Speaker 5: As a parent with two young kids, I worry a
Speaker 5: lot about what kind of future they are going to
Speaker 5: inherit from us. Unemployment's going up, inflation is going back
Speaker 5: up again. More and more New Zealanders are simply giving
Speaker 5: up and leaving the country while our economy shrinks, businesses close,
Speaker 5: and opportunities seem to be disappearing. We need to turn
Speaker 5: that around. We need to create a future that young
Speaker 5: New Zealanders will want to be part of. A reason
Speaker 5: for our young New Zealanders to come home after their OI,
Speaker 5: a reason for them to stay in New Zealand because
Speaker 5: they know they can get good, well paid jobs that
Speaker 5: will create the sort of opportunities that they deserve.
Speaker 2: All right, So the Labor Party has announced to this
Speaker 2: New Zealand Future Fund, which it is calling its plan
Speaker 2: to back New Zealand's potential and create secure, well paid
Speaker 2: jobs across the country. It'll do that by investing in
Speaker 2: New Zealand infrastructure and businesses, lift productivity and reinvest by
Speaker 2: seeding capital from a number of Crown assets, independent governance
Speaker 2: of that and protecting core assets from privatization.
Speaker 3: Not a small task, No, yeah, I mean it's a
Speaker 3: it's a big concept. It's a concept that's not new
Speaker 3: in a way. I mean, it's like, it's interesting. This
Speaker 3: is their first bit of economic policy that they put
Speaker 3: out and it's how I described This is going to
Speaker 3: be administered by the New Zealand Superfund, which has got
Speaker 3: you know, billions of billions of dollars and invests wisely
Speaker 3: and sensibly around the world and in New Zealand, but
Speaker 3: doesn't want to go crazy in New Zealand because it
Speaker 3: has to have a balanced portfolio and keep making money.
Speaker 3: But I think that Labour's pitching this these are my words,
Speaker 3: is a kind of a side hustle for the Superfund,
Speaker 3: so that the Superfund would have a sort of like
Speaker 3: a if you think of a big money manager, a
Speaker 3: big fund having a boutique fund off to the side
Speaker 3: that is very specifically for New Zealand businesses that's smart innovation,
Speaker 3: probably tech, but it doesn't specify that exactly. It could
Speaker 3: be for infrastructure and so much more of a New
Speaker 3: Zealand and kind of focus, and you sort of spin
Speaker 3: that off to the side. You have it managed by
Speaker 3: the superfund. You know, they look at countries like Singapore
Speaker 3: do it and they've been very successful and have you know,
Speaker 3: billions of dollars worth of assets. So it's possible that
Speaker 3: what you could you the goal is that you actually
Speaker 3: make money because you're investing in these companies and taking
Speaker 3: a stake as well as providing capital and support for
Speaker 3: them to get going and boost the New Zealand economy.
Speaker 3: The critics will say, and there'll be a hard criticism
Speaker 3: from say the act Party and because they see that
Speaker 3: as government's picking winners and they look at the failures
Speaker 3: over time of governments doing that and sometimes governments get
Speaker 3: it wrong. Why is the government trying to pick one
Speaker 3: company over another and decide which one. Well, mon't be
Speaker 3: the politicians, it'll be a board of investors as part
Speaker 3: of a state fund. But yeah, that's sort of ideologically
Speaker 3: opposed to that. It would sit quite well with the
Speaker 3: way New Zealand first looks at the world in terms
Speaker 3: of a state controlled investment is sort of a mixed model.
Speaker 3: It's capitalism, but it's you know, with a state involvement
Speaker 3: in capitalism.
Speaker 1: Well, I was going to.
Speaker 2: Say, the vibe really does give New Zealand first, not
Speaker 2: the party, but putting New Zealand first, right, Winston would
Speaker 2: quite like.
Speaker 1: Yeah, I mean, I think that'll work.
Speaker 3: I mean, in fact, even National could probably cope with
Speaker 3: this kind of policy if it didn't have to have
Speaker 3: act as a side partner. Because you hear Christopher Luxen
Speaker 3: talk about countries like Singapore and Ireland. You know, all
Speaker 3: these countries that have accelerated their growth with investment and innovation,
Speaker 3: and Singapore is a classic example of one where they
Speaker 3: really they save money and they put money back into
Speaker 3: their own economy and their own tech companies and startups.
Speaker 3: And you know, dare I say, it's kind of a
Speaker 3: you know, it's not the communist Chinese, but it's a
Speaker 3: very modern China does it very intensely as well. Modern
Speaker 3: modern Chinese economy is very focused on picking winners special
Speaker 3: zones where they build industry up and they put government
Speaker 3: money into it. And it's it's a kind of a
Speaker 3: sort of mixed model capitalism with the state involved. I mean, yeah,
Speaker 3: this isn't a sort of a revolutionize the whole economy.
Speaker 3: It's a very specific fund. I guess you know, it's
Speaker 3: it's something that could work, and you leverage off the
Speaker 3: superfund which has got this infrastructure for investment. So you
Speaker 3: keep it very market focused and keep the disciplines there
Speaker 3: to make sure that you're you're not just throwing money
Speaker 3: at things, you're actually investing things in things that will
Speaker 3: deliver a return. It's it's a high risk, higher risk
Speaker 3: area of investment once you get in the closer you
Speaker 3: get to seed funding. You know, it's like venture capital,
Speaker 3: and you're you're you're investing in companies at a very
Speaker 3: early stage, so there's a higher rate of failure. But
Speaker 3: when one takes off and really does well, like literally
Speaker 3: takes off like a rocket lab or going to say,
Speaker 3: it can go on to be worth billions. So so
Speaker 3: you know that the private investors that do that tend
Speaker 3: to have a large portfolio. You need to sort of
Speaker 3: maybe invest fifty things and if one or two of
Speaker 3: them take off, you'll actually make your money back because
Speaker 3: you've structured things in a very clever way. And that's
Speaker 3: what this would need to do. It would need to
Speaker 3: be very focused on sort of market disciplines and have
Speaker 3: a really good investment.
Speaker 1: Team.
Speaker 3: And it's a good idea. I mean, I think that's
Speaker 3: something that.
Speaker 2: Well, it's something that we've looked to Australia. Australia uses
Speaker 2: the super Fun in much more diverse ways than we do, right,
Speaker 2: And it's something that economists have been in toying with
Speaker 2: for years.
Speaker 3: I mean, Labors mentioned the Ossie version and how they
Speaker 3: do it, and they've talked also about pushing the New
Speaker 3: Zealand super Fun to do a bit more infrastructure and
Speaker 3: some of those things. And it does do a decent chunk,
Speaker 3: but its primary job is to earn money for our
Speaker 3: retirement savings, so it has to say a bit more
Speaker 3: balanced and this is probably a way to sort of
Speaker 3: silo out.
Speaker 1: This more sort of New Zealand focused.
Speaker 3: Innovative end steps. Yeah yeah, yeah, yeah, So I mean promising.
Speaker 3: I mean I could, as I say, it's something that
Speaker 3: could be a bipartisan thing. Act would hate it, so
Speaker 3: I can't imagine national getting on board with it. But
Speaker 3: I could imagine somewhere down the line if a Labor
Speaker 3: government introduced this, it wouldn't be removed.
Speaker 1: Put it that way.
Speaker 2: Well, Hopkins has said that Luxe and I quote has
Speaker 2: no plan for our economy and that he is relying
Speaker 2: on house prices, the Reserve Bank and foreign investors to
Speaker 2: turn everything around. What do you make of that statement.
Speaker 1: Well, that's sort of a plan.
Speaker 3: The foreign you know, the foreign investment thing is part
Speaker 3: of the plan that they are trying to so I think,
Speaker 3: you know, to be fair to luxel and that there
Speaker 3: is he would argue that there's very much a plan.
Speaker 3: They want to get the New Zealand economy into good
Speaker 3: shape by dealing with some of the first issues, making
Speaker 3: it a safe, stable place to invest and then get
Speaker 3: out and a tract foreign investment. So they believe that
Speaker 3: foreign investment can really do a lot of the job
Speaker 3: that I guess they was talking about with this, and
Speaker 3: there is a way to do it.
Speaker 1: That's the way Ireland's done it.
Speaker 3: So you probably could just about go, well, there's a
Speaker 3: Singapore model and there's an Irish model. This government hasn't
Speaker 3: got the money to quite do a full Irish model
Speaker 3: because it involves cutting taxes for foreign investors, but it's
Speaker 3: definitely trying to make it New Zealand more attractive for
Speaker 3: foreign investment. They you know, I think it's a bit
Speaker 3: unfair to say they're just relying on house prices because
Speaker 3: you listen to Chris Bishop, he's sticking to his guns
Speaker 3: that the flat to falling house prices are a good thing.
Speaker 3: So look, the reality is house prices come back. It
Speaker 3: probably helps the economy and helps the government. But I
Speaker 3: don't think they're pushing that too hard. I mean, they've
Speaker 3: been prepared to wear a fairly big downturn, so you know, look,
Speaker 3: is there enough of a plan? Well, that's highly debatable,
Speaker 3: but I think some of that was rhetoric from Chris Hipkins.
Speaker 2: Thanks for joining us, Liam Jeers. That's it for this
Speaker 2: episode of The Front Page. You can read more about
Speaker 2: today's stories and extensive news coverage at enzidherld dot co
Speaker 2: dot nz. The Front Page is produced by Jane Ye
Speaker 2: and Richard Martin, who is also our editor. I'm Chelsea Daniels.
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Speaker 2: behind the headlines.