Inflation and Money

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Background

High inflation is mainly a question of money (too much money chasing too few goods, services, and investments). In New Zealand's case, inflation has been made worse by reckless government spending, especially since 2020. External shocks (e.g., an increase in oil prices) can also cause inflation, but this is largely outside government control.
A main responsibility of the Reserve Bank of New Zealand is to influence the New Zealand dollar money supply through a variety of mechanisms, including speaking with authority, setting policy for the banking sector, setting benchmark interest rates, and engaging in financial market operations.

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Reserve Bank Independence

In the late 1990s and early 2000s, a big show was made of making central and reserve banks independent. However, from 2008 onwards (the Global Financial Crisis) and from 2020 onwards (Covid-19), central and reserve banks across the Western world have tended to follow policies that are highly favourable (in the short term) to their incumbent governments. In other words, it is not clear that they are independent. 
In New Zealand's case, rapid expansion of the money supply, combined with very low interest rates and a large programme of quantitative easing, allowed the reckless Labour administration to borrow tens of billions of dollars and to abandon all fiscal discipline. As is always the case with irresponsible monetary policy, the chickens have come home to roost, and we are now seeing high and persistent inflation, higher interest rates, and an economy in recession. A large part of all these problems is self-inflicted.
Through its quantitative easing programme, the Reserve Bank bought bonds on a large scale in an attempt to influence interest rates. The Bank (and ultimately the New Zealand taxpayer) has lost an estimated $10 billion on these purchases.

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Role of the Reserve Bank Governor and Board

New Zealand has higher and more persistent inflation than other countries, and this is largely due to actions taken by the Reserve Bank of New Zealand and its former Governor. It is not clear that other members of the Reserve Bank board have the authority to challenge the governor (some of them have no experience relevant to banking, finance, or governance).
We note that the former governor liked to pronounce on trendy political subjects well outside the remit of the Reserve Bank, undermining the independence of the Bank by making it look like he was a political appointee - we call for the Bank and its officials to keep their focus on what is actually their job and on doing it properly.

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Monetary Policy

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