All is not well with inflation and monetary policy management in New Zealand . Both the Government and the RBNZ are scraping the bottom of the barrel in economic policies when they have to resort to inquiries into inflation and direct intervention in the NZD currency market. The terms of reference for the Parliamentary Finance and Expenditure Select Committee's inquiry into inflation and monetary policy are sufficiently wide enough to open the debate about the role of central Government in causing most of the inflation over recent years. One would hope the facts about this facet of the causes of inflation are appropriately presented to the inquiry. Asia-Pacific Risk Management will certainly be completing a submission along these lines.

The RBNZ will contend that the inflation increases have come from the over-heating of the residential property market. Already the tax treatment of rental investment properties is under scrutiny as an inflation culprit. Overly restrictive city boundary land zoning practices by Councils should also come under the microscope as new housing land supply fails to meet the population increase demand. It could be that we are making the 1% to 3% inflation target objective far too hard for ourselves, with volatile food and energy prices not influenced by interest rates or exchange rates. Likewise, Government and public sector price setting behaviour is also not influenced or affected by RBNZ monetary tightening via increasing the OCR. In the 1990s oil and Government charges were specifically excluded from the RBNZ's inflation accountability measure. Why are they back in there? The whole framework of how and why the RBNZ manage monetary policy to control inflation requires a re-think and overhaul in our opinion.