Corporate Price Gouging is causing inflation, not pathetic wage rises – Why Orr has walked away from monetarism


The ramifications of Orr surrendering inflation to the market with a pathetic 25 point rise in the OCR last week are still being digested, but it is a clear signal from the Reserve Bank Governor that NZ Free Market Monetarism alone will not and can not get the Government out of the neoliberal straightjacket both National and Labour have collectively agreed to to strap themselves into.

Despite the enormous inflationary pressures about to rip through NZ in the wake of Orr’s capitulation, Orr is telling the Government they can’t rely on him screwing the scrum any longer and they have to raise taxes on the rich to pay for it!

Inflation lowered in our last quarter because of softening oil prices caused by Biden tapping the US strategic oil reserves. OPEC responded to Biden with cuts which take effect next month on top of the 25cent fuel subsidy relief coming off, on top of unprecedented 100 000 migrants on top of food supply problems impacted by the recent cyclone damage to our horticultural industry – Orr is driving the Economy off an inflationary cliff and daring Grant Robertson to take the wheel!

We are not seeing wage increases as the driver of inflation, what we are seeing is price gouging!

As Professor Wayne Hope pointed out earlier this week on The Daily Blog

Behind this policy correspondence lies the fundamental truth of New Zealand party politics. Labour and National are both die-hard monetarists, the Reserve Bank Act is their unspoken article of faith. On this doctrine, advanced in the late 1970s, excessive public expenditure and real wage growth will increase aggregate demand and inflation levels. If central banks can adjust the money supply to increase commercial/investment bank interest rates, demand will contract, and inflation will be manageable. Unemployment rise is a necessary if unfortunate side effect.

Research from William Phillips, Paul Samuelson, Milton Friedman and others seemed to indicate a trade-off between inflation and unemployment. Fiscally responsible governments would target the former through monetary policy. Well-meaning spend-up governments would over-inflate and damage the economy. In New Zealand, Labour’s 1989 Reserve Bank Act effectively ended the debate. Both major parties concurred with the legislation. The 2021 RBNZ Act modernised operations and tweaked the legal wording but didn’t change the basic doctrine. 

Aside from older macro-economic arguments, the doctrine is wrong. Inflation today does not have monetary causes and monetarist solutions cannot work. Edward Miller, economic researcher for FIRST UNION, cites a US Federal Reserve study which debunks the Phillips Curve. Organised labour’s declining bargaining power weakens the relation between unemployment and inflation. Wage-push inflation growth is just not there, so why contract the economy? In New Zealand, between 1991 and 2023, union density declined from over 50 to 20% of the workforce. Clearly, today’s stunted, uneven wage growth is not going to trigger an inflationary surge.

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…exactly, this isn’t a wage generated inflation, it’s naked price gouging in a weak regulatory environment!

As Emeritus economics professor Tim Hazeldine noted:

It’s COVID inflation that was driven by a supply push from the pricing side of the market. The initial transportation logjams caused by lockdowns gave shippers—especially container shippers—the excuse to drastically hike their prices. In the confusion, many other sellers of many other products discovered that they suddenly had, as one analyst put it, ‘real pricing power’. And boy did they use it! 

…this Price gouging inflation is backed up by International research

For US economists Isabella Weber and Evan Wasner, evidence acknowledged by US and European central bankers indicates that “price setting by firms with market power drive inflation”. Giant corporations have the product portfolios, dominant market positions and revenue management systems to maintain margins and customers. With global reach, they are less dependent on any single national market and can shape prices. By contrast, small businesses cannot easily raise prices as costs go up and interest rate repayments increase. Creditworthiness and access to loans will therefore diminish.  

…which is exactly what we are seeing in NZ

Sound familiar? As Tim Hazledine would attest, supermarkets, power companies and banks are pricemakers who drive up inflation while the rest of us struggle. Most obviously, the four largest Australian banks in New Zealand collectively made over NZ$6 billion in 2022. They exploit, ruthlessly, the margins between the interest rates of wholesale money for them and the mortgage rates for captive homeowners.

…into this debate Orr has clearly drawn a line under how far the Reserve Bank Governor now sees the limits of NZ Free Market Monetarism.

I’m no longer looking for Socialism from Labour, just basic regulated capitalism and even the Independent Reserve Bank Governor seems to be communicating that to Treasury.

The message is clear.

Push up wages, regulate the market and tax the rich!


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  1. Actually, it appears to be both price gouging and wage increases which are leading to higher inflation, with price gouging perhaps being the more primary cause here.

    And instead of wages going up, rental prices increasing, and property prices increasing ever more, cementing an infatuation between Kiwis and residential real estate, the economic climate indeed would benefit from measures like rent control, albeit temporary and in the three, four, or five most expensive cities or areas. By temporary, maybe one or two years?

    • Once a monopoly has reached the profit-maximizing level of price and volume, it is against their own interests to continue raising real prices. Demand will fall, and sales will decline. The rise can only be temporary.

      Wage rates can only continuously increase if the supply of currency increases to cover the cost (i.e. not a continuous rise in real terms, due to the devalued currency).

      If companies tried to finance wage raises by constantly hiking real prices, the purchasing power of the wages would collapse. Sales would fall as the customers ran out of money, the unsold products would pile up, and workers would end up being laid off.

      During periods when sound money was used (i.e. no currency devaluations), the general level of prices consistently fell, as production becomes more efficient over time.

      • Who was cheering on the supermarkets in 2020 to allowing them enjoy the greatest duopoly known in the history of NZ business? The Labour govt shut down the only competition they had, and the supermarkets creamed it.

        Do you think the supermarkets were just got to cede all that power the govt gave them?

        Hates to say it, but I told you so.

        • More bullshit.
          Pak n Save Hamilton can sell gas at $1.96 Ltd and a block of cheese for under $10. Nothing to do with Labour and all to do with not price gouging. Minimum wage rises and still the owner chooses to keep costs down, probably why the place is packed.

      • Thank you, I appreciate that. I still feel that our economy should respond to the pressures it has faced over the past half decade. This includes the pandemic.

        What this would mean for me personally, from an ideal perspective, is the possibility of rent controls in Urban areas; retaining the age of superannuation at 65; an increase in the budget for transport and roading; increased budgets also for health & education; and the continuation of the recent increases to benefits.

  2. Wage increases are not causing inflation, what a load of B/S it is price gouging by the Supermarkets/Corporates and the Banks, when you have Supermarkets making 100% mark up on fresh fruit and vegetables, and high prices due to whether conditions of course inflation is going to increase. It ain’t Rocket Science ???

    • Think 100% mark up is a loose term,need to factor in direct costs,overhead costs and yield/wastage.

    • However much you argue that it will never make it true.
      A capitalist market economy just does not work like that.
      Shit regulation harms a market and allows monopoly conditions to exist.

      And we all know this!!

  3. Lets face it, in the neoliberal Ponzi, immigration causes inflation, having tens of thousands of new people entering a country that need to buy housing, goods, food, cars etc every month is the driver of inflation. The same is happening in the UK, they are worried about 700,000 per year on 60,000,000 population – NZ has 300,000 with the tourist visas included on a population of 5,000,000 – which is considerably worse.

    Government advisors make it worse by claiming that putting up wages will drive inflation so they suppress wages where the underpaid jobs are taken up by migrants – who are often at a much lower standard of expertise (the high skill migrants are now skipping NZ, it is the poorly skilled or unskilled migrants attracted to NZ now visa a student or working visa).

    Thus expert professionals leave NZ as they find that their professional wages are too low to support the rising interest rates and inflation.

    So there are more in poverty, more crime and less professional services available in NZ, while those right wingers and woke benefiting from the Ponzi scam, are braying for more of the same.

    Each year it gets worse. They fucked up the health system and now can’t even find people skilled enough to seal the roads properly. The cultural fit is now in favour of the stupid leading the stupid as those who knew what they were doing are long gone – either fired for questioning the new regime or left for higher wages.

    • Lucky they can still find ‘doctors’ in NZ willing to work for $65 – 104k.

      The faker also worked for MBIE for the immigration department and claimed he had a masters in science! Nobody checked!

      Doesn’t give citizens of NZ, much comfort knowing how easy it is, to fake qualifications and references in NZ for a range of government jobs!

      How imposter doctor’s lies went undetected for years

      “Court documents show Krishnan was employed by the Auckland District Health Board’s Covid-19 support team in December 2020.

      The $65,000 job didn’t require a medical degree, but documents show Krishnan told health board authorities he had one from a Polish university, as well as a Master’s in Science from Sydney University. Both were lies.”

      “Krishnan lasted a year at the ADHB before applying for a position at Middlemore, one of the country’s busiest hospitals. The job had a base salary of $104,080.

      Krishnan secured the job using the same fabricated qualifications he had used with ADHB.”

      “He falsely claimed that he held a Masters in science from Sydney University and had worked as a “health officer” at the Ministry of Business Innovation and Employment (MBIE), where he actually worked in the immigration division.”

      “Just two days into his gardening leave, he applied for two jobs. One was at the Medical Research Institute of New Zealand, based at Wellington Hospital. He was rejected for the position and told he needed more experience.

      The second was as a qualified doctor and dermatologist at NZ Skin Health in Howick. His CV recorded that he was a doctor and had done a skin cancer course in the US.

      It included other false information, including a claim he had worked as a dermatology research fellow at the Botany Super Clinic during the time he had actually been working at Middlemore.

      At a subsequent job interview, he provided the name of Dr Geoff Masterton as a referee, an invented character Krishnan had earlier relied on. The cellphone number Krishnan supplied for Masterton was actually his own phone number.

      In the following days, court documents show Krishnan was consulting the search engine Google, to search how to remove moles and similar procedures.”

    • @ TC
      “Where’s the commerce commission on this”
      Sniveling and powerless as it waits in line at the supermarket cradling $12.00 eggs.
      Let’s not forget that our government departments are only as strong as we enable them to be. And we’re fucked.
      We need urgent help from the Crown or we’ll become a republic and then we’ll be gone.
      No access to rivers, beaches and national parks. @ Maori will become a cute Disney World sideshow and the Treaty will be as effective as the bible is to day to day existence. If you want a glimpse of the future check out the Fentanyl addicts on the streets of San Francisco.

    • More committees less do- es. Just like the supermarkets that have got away with price gouging at new levels (ak prices that are clearly against the rules by saying they are on sale or discounts are not discounts) but Com Com just put in more management with another set of supermarket committees to ‘oversee’ this.

      Less overseeing and management committees and more fines would do the trick, quicker and cheaper.

      As for drainage monopoly – we had a Gib monopoly/Fletchers for decades they did nothing about. Now firms that survived decades are going into liquidation – they are in-between big people like Fletchers who have special ‘relationship’ with the government and other building tradie players that pay cash and use illegal labour that never pay tax! So we now have the best priced/more honest construction firms going out of business due to the lack of effective regulation on both monopolies and tax/immigration fraud in NZ!

      Funny how woke managers hate landlords but let the developers rip off home buyers with sunset clauses that increase the price of the housing so they don’t have to settle and are now paying bizarre near millions for Kainga ora housing driving up affordable housing! Now few will buy new development that is not completed as there is a Wild West operating in NZ in both food and construction!

      Good luck solving the housing crisis and food poverty when they allow this to get to epic proportions!

    • The Commerce Act (1986 ) allowed the predatory behaviour of the market players to exploit loopholes unabated for decades.

      Hence, the new changes to the Commerce Act, particularly to S36 in April 2023, were essential to even establish more legal powers to chase down out of control exploitation.
      The stripping of regulatory teeth ( that dirty word – deregulation) from the Commerce Act in 1986 left the ‘market’ open for unrestrained greed. Whilst the Act was there to supposedly protect consumers too, it has taken 30 years of this subterfuge to legally allow for large scale

      • single firm conduct by a large player to increase its
      monopolistic power or damage competition by smaller
      rivals or new entrants;

      • conduct by more than one firm in concert, through
      contractual or informal arrangements (which can be
      benign in intent but still affect competition or can be
      more pernicious such as deliberate collusion and cartels);

      • transactions by merger or acquisition through which firms
      combine and grow to the size of a large player (increasing
      the risk of abusive large firm conduct in );

      and allowed unfair anti competitive practices  in manipulating

      • sector-specific price controls, typically for infrastructure
      monopoly providers, when market failure is evident or the
      other three competition law controls above are ineffective. ”

      A further very readable interesting article is
      ” Why the Commerce Act 1986 is Unfit for Purpose.”  Geoff Bertram ( 2020).

  4. Or “parent companies”, where it turns out all the brands are owned by one company and there is no actual competition – and the ultimate parent company is foreign owned. Where is our anti-trust law? Why are all our profits going off shore?

  5. Yes but we need to define ‘rich in NZ’

    Being muddle class is not rich.

    And if we tax the top 5%to much , they will just run off to tax havens and we are worse off without the capital and jobs they provide.

    Need s a little bit of regulated capitalism, but not much. The public sector and private sector both need and depend on each other.

  6. interest rate rises do nothing to bring down inflation it’s just an economists theory….show me a country where it has worked…once again slaves to neo-lib ideology come he;; ot high water

    chairman the CC as always is ‘missing in action’ they should be renamed the ‘MIA commision’

    • Of course it used to. It used to result in job losses.

      Lifting interest rates sharply does not do it when there is artificial job security created through tax appropriation and incentives. That is why the revised strategy to let it sink in over time makes some sense. I am not sure that this was the intention. Probably more to do with politics of the day and the board not wanting to be seen to affect the election.

      IMO. The fact that the cash rate decision went to a contested vote tells us that.

      • interesting historical take on structural unemployment johan but I WAS referring to the contemporary situation

  7. Marsden Point no more! = Inflation!

    With no control over the cost of fuel(s) diesel especially. Everything will continue to increase in price until we build another oil refinery to stabilize the prices.

    Whose dumb idea was that to kill off Marsden Pt and fill the connecting pipe from the refinery to Aucklands Wiri terminal for supply with concrete?? What a fuckwit.

  8. Weaker NZ$ will further increase fuel prices.
    Current managers of our economy don’t understand these basic issues.

    • That is the price we will all have to pay to sort out the balance of payments problems that have been created…… or as some will argue was caused by covid.

    • @Bob: Correct. R.B.N.Z. has effectively devalued the NZD. by over 40% in five years, with $1,000 buying 0.3073 Oz. of gold (mid-market today), down from 0.565 Oz. in Nov. ’18.

      Two decimal NZD. were exchangeable for one N.Z. Pound, which was equal to one Pound Sterling. The £1 sovereign coin, which once circulated locally, contains 0.2354 Oz. — and thus the currency has lost 99.7% of its value!

  9. ” Push up wages, regulate the market and tax the rich!”
    Yes. Except for one small thing. Nothing really.
    Instead of ‘tax the rich’ how about ‘investigate the rich’ and start by following the money trail back to its origins. Then, a royal commission of inquiry into the politicians who enabled the rich to be so.
    There’s no mysterious magic behind the rich getting rich, just corruption and palm greasing.
    graeme hart said he “..could smell the money..” Well, that’s awesome graeme bro but all this poor old cunt can smell is bullshit.

  10. It is obscene that Banks are profiting during a supposed recession, it is obscene that the wealthiest land owners are not taxed for occupying space, and it is obscene that we live in a country that directly compares to feudal Europe, where wealthy landowners are the only ones that control the vote, while generation rent etc are too exhausted attempting to keep their children and themselves fed, to find the fight for democracy that we need to refind within us. Like Jarvis Cocker sang in 2006, c*nts are still running the world. A somewhat eternal statement that connects to Kings, Wall Street tycoons and mass property owners in Aotearoa. C*NTS ARE STILL RUNNING THE WORLD and they are fragile white men. The true c*nts of eternity.

  11. all our food products are getting smaller and we’re paying twice as much for them, food inflation is greater than actual inflation.
    Big industries announcing large profit margins during inflation shows something is seriously wrong but again our politicians sit on their hands and do nothing.

    All politicians are corrupt.

    Stop voting for this madness!

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