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RNZ financial reporter Susan Edmonds.
photo: Royal Bank of New Zealand
If you have questions you would like answered, please send an email susan.edmunds@rnz.co.nz
I think I heard the Reserve Bank say it wants to increase unemployment as part of an effort to reduce inflation. If we need more people to be unemployed and we hit them when they are unemployed, does that seem like a problematic system?
You are right that the Reserve Bank has been trying to slow economic growth to reduce inflation – it has long talked about creating a recession. This week it said the effects of monetary policy could be so strong that it could also push us into another recession.
Unemployment has risen as a result. (Last year, the government scrapped the central bank’s dual mandate of maintaining price stability and supporting maximum sustainable employment — though commentators say that may not have much impact on the central bank’s recent calls.)
Less employment also reduces inflationary pressures because when more people are competing for jobs, employers don’t have to pay as much, slowing the rate at which wages rise. Fewer wage increases means less money for households to spend, less pressure on businesses to raise prices to pay for higher wages… and so on.
Craig Renney, a Council of Trade Unions economist who once worked at the Reserve Bank, said people should think of the Reserve Bank as a robot: “It’s been told to get inflation down to target, and it has the tools to do that, and everything else is someone else’s problem.”
The purpose is not to make people unemployed, but to make people miserable, which is just a side effect of the measures that banks have to take.
BNZ chief economist Mike Jones said the rise in unemployment so far was not due to mass layoffs but more to a slowdown in hiring and more people being available for work due to factors such as immigration.
“But as we continue to overcome tough economic conditions in the second half of the year, we may see that change.”
When the public trust finalizes the signed documents of my mother’s will, I will inherit approximately $250,000. With your knowledge of financial matters, what will you do with this money?
If it were me, I’d probably pay off my mortgage. But what you should do with the money is another question!
It depends on a lot of factors – your debt, your income, your goals, your other investments… A good place to start might be meeting with a financial planner or investment advisor who can give you sound advice based on your personal situation.
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