Late last century it became evident world-wide that whenever economists agreed on a future economic forecast, invariably the opposite occurred.
To the best of my knowledge I was the first to point this out in my newspaper columns at the time. In my comic novel OGG, published in 2002, I had a scenario whereby an outfit at the centre of my story employing people searching the world’s newspapers seeking out such situations, then making a fortune backing the opposite outcome.
Since then it’s been a widely recognized phenomenon. The Economist and other respected publications have often written about it while Harvard set up a chair to study why this occurs.
I mention all of this because right now New Zealand’s economists are all trotting out a short-lived inflation spike forecast then a levelling off next year. The fact they’re all singing the same song guarantees the opposite will occur, but aside from that convention, I’m puzzled at their ignorance.
New Zealand is awash in reasons for a massively inflationary 2023 such as we haven’t seen since the early 1980s.
For a start, every sector is demanding wage increases to maintain spending power. When even university professors are marching and going on strike we’ve certainly got a problem. Daily the news is filled with sector strike threats, the latest being nurses. Their complaint is valid but unfortunately as we know, bowing to their demands as indeed will happen, simply compounds the problem setting off a spiral of increasing costs and then parity demands.
But to really magnify the problem is the widespread labour shortage across all sectors, from waitresses to doctors, busdrivers to policemen- these are no exception. 2023 will be a year of strikes. I have before me a page from the Dominion Post of 17th October. It says it all. Headed “Inflation about to Come Down, Economists Say,” alongside is a story about “desperate Australian employers gym memberships offering haircuts, free food, cash signing bonuses up to NZ $11,000 and so on. It quotes Australian Federal Government statistics saying this staff crisis now applies to 286 vocations.
Compounding this disaster is our government’s spectacular ignorance re migration. We’re looking at a crisis in hospitals as our now ridiculously over-worked nurses are moved to Australia at massively larger salaries. We’re losing skilled people in vast numbers.
Try and get a builder in our cities. They’re booked up for months, primarily because they can’t take on new work through lack of staff. Add to that lack of materials, again tracing back to staff shortages.
A carpenter can double his income overnight by shifting to lower cost Australia, be it in housing, groceries or any item, and his fares will be paid by grateful employers.
I’m picking a minimum 15% plus and rising inflation by next year’s election, driven primarily by labour shortages. Make no mistake; New Zealand is in for a rocky few years. It will not be an easy problem to solve as we will be competing with higher wage Australia to attract English-speaking Filipino nurses (currently also being targeted by Britain and Australia) Filipino and Thai carpenters and so on.
In fairness, the scenario I’m forecasting won’t be unique to New Zealand as few if any countries will escape it. But that’s all the more reason we should be acting sensibly now on immigration which we’re not. The record shows inflation is highly contagious between nations for sound economic reasons. It’s defeated solely by competition by suppliers of labour, goods and services and never by price controls.
Widespread labour shortages boost price increases as demand exceeds supply. Price controls simply build up demand pressure. As always these elementary realities are lost on our economists.