John MacDonald: Inflation - what goes around, comes around

It’s occurred to me that the old phrase “what goes around, comes around” pretty much sums up inflation in five words.The more money going around, the more it comes back to bite us with higher inflation.And it’s happening in countries all over the world. Our latest inflation rate came out yesterday - 7.3 percent. Certainly not the lowest, and certainly not the highest.The most recent inflation figure in the UK is 9.1 percent. In the US it’s 9.1 percent. Lebanon is the worst, though, at a 211 percent rate of inflation.Nevertheless, no one can argue that the cost of living here in New Zealand is going through the roof when you consider how much more we’re paying when we go to the supermarket, fill the car up with fuel, pay the rent or try to build a house.Pretty much everything is more expensive, which is probably why people are talking about it being a gloomy winter. It feels like it, doesn’t it?Now, not surprisingly, the politicians have been going bananas since the inflation stats came out yesterday. Especially the ones in opposition.David Seymour from the ACT Party is banging on about tax cuts being the answer. Which, to me, is a little bit strange when you would think that putting more money in peoples’ pockets like that would just cause inflation to keep going northwards.The National Party has been talking about tax cuts too - but not just that.In some respects, whether we like it or not - and this is where Finance Minister Grant Robertson comes from - a lot of the things causing our inflation to increase here in New Zealand, we have no control over.The usual things trotted out are Covid-related supply chain issues and the impact the war in Ukraine is having on global supplies of fuel.We - or the Government - have no control over that. Just like we - or the Government - has no control over what other countries are doing to try and keep their inflation rates down.The United States, for example: a 9.1 percent inflation rate and it’s doing exactly what the Reserve Bank is doing here and increasing interest rates to make it more expensive to borrow money.When the Reserve Bank does that it, generally, just affects us here. Because we are smallfry. But when the Federal Reserve does it, it affects the whole world. Because it makes the United States a more attractive place to invest, which pushes up the value of the US dollar and makes life more expensive for pretty much every other country around the world.And there is nothing Grant Robertson can do about that. Nothing.But as National’s deputy leader and finance spokesperson Nicola Willis is saying, the Government can and should be doing its bit to fight inflation.And she’s not talking about the fuel tax discount or the half price public transport. She’s calling that a “band aid” and I couldn’t agree more.What National is saying, is that the Government has control over what it spends - and if it spends less, then that will help bring down inflation.This is something that former National MP Dan Bidois is saying today too. And he’s pointing the finger at the Government for spending truckloads of money on its reforms programme.Think back to the old saying - what goes around, comes around. If the Government is out there spending money - just like you or me - then, of course, it’s going to have some impact on what happens with inflation.And so the Reserve Bank tries to make us spend less by putting up the Official Cash Rate so that the banks have to put up their interest rates.But it shouldn’t all fall on our shoulders. And it makes perfect sense, then, doesn’t it for the Government to do exactly the same? Because the less money floating around the place, the greater the chance of putting some sort of lid on inflation.And what Nicola Willis and Dan Bidois are saying today, is that the Government should ditch some of its reforms if it means less money...See omnystudio.com/listener for privacy information.