Everyone needs to play their part

RBNZ Governor Alan Bollard in his speech summarises the developments in NZ economy. He says inflation is still very high but things look better as prices are falling sharply. He then says:

We need to see inflationary pressures reducing significantly across the board, if we are to keep on easing monetary policy, thus helping the New Zealand economy to recover. That depends on all sectors of the economy responding to the reduced demand and not adding inflationary pressures to the system.

 

Some examples: we would hope that the electricity industry does not take advantage of its market position and keep increasing rates, that local authorities realise they need to set rates increases below inflation for a change, that the construction materials industry respond to much weaker demand, that the food industry react to lower international commodity prices with price cuts, that petrol companies keep cutting forecourt prices, that the transport industry pass on fuel price cuts, and that the banks pass on interest rate cuts. Only then will all these firms be playing their proper role in New Zealand’s recovery.

These are actually desperate calls for the NZ industry to get its act together and pass-off lower prices to the consumers. One hears these statements so often from policymakers across the world these days. I would think let markets take their own call on what to do and what not to do. If you believe markets perform well in good times they should do the same in bad times as well.  

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