A word from Bill Kaye-Blake, New Zealand Institute of Economic Research principal economist, based in Bannockburn


Don’t worry, inflation’s just a number . . .

What, me worry?

Inflation is back in the news, the old bugbear.

After the Global Financial Crisis and then the Covid-19 pandemic, the big concern was keeping the economy moving.

Inflation from an overheating economy was just not a problem.

Now that inflation seems to be back, should we really worry?

Forecasters, officials and economists love to talk about inflation.

It’s a number, it goes up and down, they can offer predictions and advice.

The story they want to tell you is that the economy is a race car.

They are using exact measurements like inflation to tune the engine so the car runs perfectly.

But it really shouldn’t be headline news.

It’s a pretty technical statistic that has multiple versions at any one time and eventually gets revised.

The economy is a lot more like an old push bike.

You have to keep pedalling it forward so it doesn’t fall over.

It’s got new parts attached to old parts.

The gear shift sticks a little and the brakes tend to grab.

Yes, the Reserve Bank makes sure the chain is in good nick, but there is a lot more going on.

There’s one graph from the latest Reserve Bank release that gives the game away.

The output gap measures the difference between what the economy is doing and what it could comfortably do at full employment.

The main estimate this month is that the economy is over-worked.

The output gap shows that we are working above capacity, which is creating inflation.

The graph also shows the range of estimates it the margin of error.

The range that the bank estimates?

It shows we could be over-worked, or under-worked, or just right.

It’s the statistical equivalent of a shrug.

The difficulty is that there is a lot going on.

You have probably noticed that petrol prices are up.

On the other hand, some technology prices are down.

At the same time, more people are getting jobs and wages are higher.

Now there’s a new Covid-19 variant, too.

Are you better off than three months ago?

That depends on your personal circumstances and how you spend your money.

And that’s the biggest problem with the talking heads frothing about this single number.

Should you worry?

As usual, that depends.

More likely, there are better things to worry about.

Keep the push bike moving and you’ll probably get where you’re headed.