Nicola Willis: Finance Minister on annual inflation hitting 4.1% driven by a surge in fuel prices and rise in electricity bills
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Why did annual inflation rise to 4.1% and what’s behind the headline number?
So the inflation headline didn't tell the real story. The headline was inflation is at a two year high. The real story is it's nowhere near as bad as we thought. 4.1 could be as bad as it got. Take petrol out. We're actually fine. Nicola Willis, finance minister, is with us. Morning.
Good morning, Mike.
You blame Trump and you're quite right to blame Trump. But your other problem are rates and power. One, is that correct? Two, what are you going to do about them?
Well, that's right. Stats NZ say this is largely a fuel story and the absence of the international oil price spike inflation would be within the target band. But we do have a challenge on our hands with rates, which have been contributing to inflation for some time. That is why our government is acting. We are going to legislate to cap rate increases because we don't want that pressure continuing on New Zealand households and on inflation. When it comes to electricity, that is also a challenge. The figures for this quarter reflect the transmission pricing that has increased as we electrify the country. The key thing for getting power prices down sustainably in the medium term is more electricity generation.
And under our government, we are getting on with that.
How much of the inflation spike is driven by global petrol and diesel prices?
We have consented double the amount of new renewable energy than the last government achieved over its two terms in office. So we are attacking that problem.
Problem is I'm paying for it. And I wonder whether I should, because if you look at the generation costs are coming down and substantially and some of those commercial players are starting to reap that reward. I'm not because all the cost plus accountants at the retail side of the equation is stinging me.
Well, you are right that wholesale prices are starting to come down as a consequence of the government's policy settings. What we then want to see is those wholesale price reductions being passed on to customers. Some positive signs there. Meridian have said that they are intending to reduce prices for their commercial customers. And what we expect to see is that as that generation actually comes on, at the moment it's consented, it's being built, that that price reduction will be priced on to retail customers. You have to ask yourself, what is the alternative?
Why are interest rates contributing to inflation and what will the government do about them?
And our view as a government has been actually what we need to do is build at pace, have those solar farms getting up, have those Wind farms getting up. That's why we're fast tracking those projects at pace. We need more generation in New Zealand so that energy is affordable.
So as much as that makes sense for bright people listening, they'll fully understand that. But you're in an election campaign. Can you sell that to the electorate and they understand it? Because also before you get to the vote, there's two more cash rate rises probably coming as well.
How is the government planning to cap rate increases to protect households?
Yes, I can, because here's the gaping gap on the other side, which is I've heard Chris Hipkins and Barbara Edmonds say, oh, look, inflation's bad. Well, what would they have done differently? In fact, all they have said they would do differently is they would have spent more, got out the spending bazooka and sprayed it all around. Well, we've had a recent experiment with that. They did that last time they were in office and it drove inflation much higher for much longer. Let's go back three years and look at what was happening with inflation then. Food price inflation, which is now at 2.8%, was at 12.3%. What we saw then was that domestic inflation, non-tradable inflation, was extremely high. It's now at a five-year low.
The point is a real one, which is when you have disciplined fiscal settings, inflation is lower than it would otherwise be. Labour are promising to return to the old mess, and New Zealanders know what that delivers.
Why have household electricity bills risen and how can increased generation bring prices down?
It delivers more tax, more debt. It's not good for the economy.
Golden Bay, while I've got you, how badly kicking and screaming were you dragged to writing that cheque?
It was an extremely uncomfortable decision for our government, Mike. It is a case of the least worst option and not something I have taken any pleasure in.
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Chapters
5 chapters
1
Why did annual inflation rise to 4.1% and what’s behind the headline number?
0:00–1:11
2
How much of the inflation spike is driven by global petrol and diesel prices?
1:11–2:09
3
Why are interest rates contributing to inflation and what will the government do about them?
2:09–2:35
4
How is the government planning to cap rate increases to protect households?
2:35–3:31
5
Why have household electricity bills risen and how can increased generation bring prices down?
3:31–5:47
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