UP FRONT | INFLATION OUTLOOK
It’s inflation Jim, but not as we know it Mint Asset Management’s head of investments Anthony Halls takes us down memory lane looking at how inflation has been changing its spots and explains Covid-19 is not the only reason we are in these uncharted interest rate waters.
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ovid-19 is being blamed for many things; some of which are fair, but others not so much. One of these such is the current ultra-low interest rates and ramp up in fiscal spending around the world. It is true that the economic fallout from the pandemic has prompted central banks to cut rates to near zero (and sub-zero in some cases), and it is also true that fiscal balance sheets around the world are being put to (more) work for the same reason. However, had we had an economic downturn for any other reason (which 06 | ASSET NOVEMBER 2020
BY ANTHONY HALLS
is quite probable after a decade of growth since the GFC), the same policy decisions and tools would have been applied – perhaps in differing speeds and quantities, but the same nonetheless. Hence, this article is not about Covid-19 or the economic fallout therefrom. This article discusses the changing drivers of inflation, and how it hasn’t died – it is just showing up in different places. For decades, liberal (or free market) economics has held sway throughout the developed world. There has been distinction and separation of the fiscal authority from the monetary authority.
Fiscal management has remained in the purview of elected governments and the Treasury or Finance Ministry or Exchequer. Monetary policy has been exercised by (relatively) independent central banks executing under specific mandates from their respective governments. These mandates have typically held (low) inflation targeting as their centrepiece, often supplemented with economic or employment targets as well. This is still true today. Our own Reserve Bank of New Zealand has an objective of maintaining a stable general
