The Prime Minister has announced a new strategy for tackling inflation. The announcement follows recent legislation transferring responsibility for fiscal management from the Reserve Bank to the Ministry for the Environment.
Explaining the rationale for the new approach, the PM was at pains to point out that she maintains confidence in the Reserve Bank and its Governor. “He has been doing a top job”, she explained. “He has my full confidence. It’s just that the Reserve Bank has so many other things on its plate at the moment.”
The workload of the Reserve Bank began to increase in 2018 when the government handed it responsibility for maintaining maximum sustainable employment. That was in addition to its long-standing brief to keep inflation between 1% and 3%. More recently, the Bank has burnished its environmental credentials with commitments to “mitigate and manage” risks associated with climate change.
“These new responsibilities,” the Prime Minister explained, “have made it difficult for the Bank to maintain a full focus on inflation. So, we thought that the Ministry for the Environment could help them out.”
The PM said that cabinet had discussed simply merging them, together with Education, Police and Health. However, while that would have created a smooth acronym (MERBEPH), there was concern that a merger may have created unjustified efficiencies. “We didn’t build the public service up to record numbers just to slash it again,” the PM explained.
She went on to unpack the new strategy for controlling inflation. “The Ministry of the Environment will oversee the planting of one billion trees by 2050, the same year that New Zealand has committed to attaining net zero carbon emissions. Consultants have assured me that this will be a far more effective tool for controlling inflation than manipulating the cash rate.”
The Reserve Bank Governor has been quick to scotch criticism of his own organisation’s new goal, to keep global temperatures within 1.5°C of pre-industrial levels. Dr Bryce Wilkinson of The New Zealand Initiative has suggested that the official cash rate might not, on its own, be a sufficient lever.
“That’s just defeatist talk”, said the Governor. “Anyway, those guys don’t care about the environment. They’re just …“, he pauses, a look of disdain crossing his normally sunny visage, “… a pack of economists. We got rid of all of ours. What would they know about climate change? Or inflation for that matter?”