Is this a new age of frugality? The impact of inflation

Whanau you are probably already hearing a lot about the korero that is inflation. So i thought i would throw some things in there for you - firstly - what is it? Well, in economics its what is called a general increase in prices and fall in the purchasing value of money:

which leads to Opposition parties and Governments looking at "policies aimed at controlling inflation" - but its complicated.

Firstly the Government are right to say that inflationary pressure that is seeing your cost of living go up is not a uniquely New Zealand thing nor is it something that New Zealand faces alone. You'll people talk about things such as the Ukranian war (as an example) that is already seeing pressure on three core things - the first is the production of grain (impact to the global food supply) the second is the price of Oil (hence the US President being in Saudi Arabia the last few days) and a third being the impact of gas supply (sanctions on Russia have seen gas supply cut to a number of European states thereby impacting production on goods and services. Then there are other issues such as a significant slowing down in the global logistics and supply chain. China in that case has not been immune. In turn these global challenges see New Zealand prices rise - and it affects just about every aspect of our lives. Petrol prices going up are the easiest to explain because of supply issues, cost of extraction and then processing. Keep in mind New Zealand doesnt actually have its own ready manufactured supply of petrol.

Because petrol and diesel cost more the actual cost of producing things such as food and then even getting it to market costs more. Therefore thats one of the reasons why we see increased in food costs. PS it doesnt mean that gauging by petrol companies doesnt occur still!

A good read of if we have been here before and how did we pull ourselves can be found here (the 1970's) which was a period in our history that came with all sorts of surprise shocks - everything from the oil shock right through to the establishment of the common market in Europe that saw New Zealands primary industries very much in the outer https://teara.govt.nz/en/factory-industries/page-5

The Reserve Bank has a significant role to play, as does the Government, when it comes to managing inflation. You can find our more information here: https://www.rbnz.govt.nz/monetary-policy

But in essence each have limited tools at their disposal to make a meaningful impact because the events that are occurring are outside of our control - such as the war in Ukraine.

The other challenge we have at the moment, which might seemingly sound good for workers, is the tight labor market. In the March 2022 quarter there were 94,000 people unemployed with unemployment sitting at a low rate of just 3.2%. That paints a picture that irrespective of Government policies in the main there is sufficient pressure on the labour market to see wages increase. And that just stand to reason right? Well, this one is not complicated - in essence when youre the one in demand there will be competition for you and therefore you will invariably see higher offers. Just to note that we are nearing full employment - not all of the 96,000 people who are unemployed will be able to work for various reasons such as accidents, significant disabilities and so on.

So how long will this kaupapa be around? Well if history is anything to guide us this is not going away any time soon. And BTW - we will inevitably be here again.

So what do we do about it? according to Investopedia:

• Governments can use wage and price controls to fight inflation, but these policies have faired poorly in the past.
• Governments can also pursue a contractionary monetary policy, reducing the money supply within an economy.
• The Reserve implements contractionary monetary policy through higher interest rates and open market operations.

The final thing I would say is that this gives each of us an opportunity to look at how we live our lives. If you dont need to drive the car to work and instead get a half priced public bus or train then do it. Better still beat the feet. Do you really need to replace that iPhone just because Apple came out with a better color? Or isnt that TV large enough? As individuals we are also consumers - my point is this could be the age of frugality.

This article is written in my personal capacity and does not reflect the views of my employer.