Once again we’re hearing talk of an inevitable inflationary age ahead, thanks to the massive money-printing. I think this concern is misplaced.
It’s proponents revert to the now rightly discredited Chicago monetarist beliefs of the early 1980s. The argument then was that an excess of money in the system led to increased demand and thus inflation. That belief in turn led to the biggest blunder in our post-war history in the form of the Reserve Bank Act and its heavy-handed application.
Price rises, regardless of their reason saw a punitive interest rate response throughout the 1990s and as a consequence, a decaying economy. Our best and brightest fled, mainly to Australia.
That is not a throwaway line. In the late 1990s an Australian survey showed New Zealand-born citizens were the best educated and enjoyed the highest incomes of any ethnic group.
It was short-lived as in the early years of this century a different breed of New Zealanders flooded into Australia drawn by demand, in the form of shearers and mine-workers.
Canterbury University Press published my book “Prosperity Denied – How The Reserve Bank Harms New Zealand” in 1996.
I came under an ignorant attack at the time as having a vested interest in inflation.
Cost inflation is much easier to explain than the numerous convoluted articles and books published back in the late 1970s and 80s. It’s simply demand exceeding supply for a commodity. The existence of demand presupposes the ability to pay.
The best weapon to combat it is an uninhibited free market to meet demand surges. Monetarists instead proposed crushing demand through soaring interest rates, rather than the more positive encouraging supply strategy.
Here’s why I don’t anticipate an inflationary consequence from our 2020 money-printing.
That money was substantially paid to employers to assist their wage bills during the lockdown. So it went to the public in exactly the same amount as pre-lockdown and they spent it in the same way as before, namely on everyday living costs.
Throughout this period agriculture enjoyed solid returns, so no unusual effect there, while the loss of foreign tourism revenues were, albeit not entirely, offset by the disappearance of Kiwi tourists’ outlays abroad.
Shortages which arose during the lockdowns were not price sensitive, notably diverse medical services such as dentistry and delayed operations.
The single commodity in which the lockdown had an inflationary effect was housing. With builders off the job the supply shortage was compounded.
So overall I believe speculation of a return to inflation days is an unnecessary concern.