Rick Jones argues it's simply too important for New Zealand to NOT have monthly CPI inflation data

Author: Rick Jones, New Zealand Country Head, CPA Australia.

Buried deep within the Reserve Bank of New Zealand’s current consultation document, Supporting New Zealand’s economic stability Toitu te Ohanga, are two paragraphs that deserve more prominent billing.

The consultation is part of the RBNZ’s five-yearly review of the remit that guides the Monetary Policy Committee’s Official Cash Rate decisions.

The RBNZ says the remit “sets out the operating guidelines from the Government for achieving monetary policy’s legislated goals of maintaining price stability and supporting maximum sustainable employment.”

Working through the paper to page 59, the reader comes to a section labelled “Enhancements to the CPI [Consumers Price Index].” This section highlights an issue which CPA Australia has been raising, that inflation data in New Zealand is published on a quarterly basis. In all other OECD economies, CPI data is produced monthly.

“This is an area in which New Zealand fails to comply with the International Monetary Fund’s Special Data Dissemination Standards,” the RBNZ says.

It goes on to note that monthly CPI data would support effective monetary policy decision-making, help policymakers in assessing inflation and improve the ability to compare New Zealand’s inflation data internationally. In short, monthly data is important to help get our monetary policy settings right.

This is not a new concern. In fact, the RBNZ notes it raised this view in a submission to the 2013 CPI Advisory Committee. But it is an increasingly important issue given the current high rate of inflation in New Zealand and globally and the pressure on central banks to rein in rising prices.

Following calls from groups like CPA Australia, the Australian Bureau of Statistics announced in August that it would start monthly CPI reporting. CPA Australia has been calling for New Zealand to follow suit.

In Australia, it’s not only the central bank that has found access to more frequent data useful. It has raised the public awareness of inflation and its sources. It has been helpful for businesses planning their operations and households readying themselves for the future.

We need more urgency to reach monthly CPI in New Zealand.

A growing number of economic observers and commentators are voicing concerns the RBNZ could overshoot in its current monetary policy tightening cycle. This may result in keeping the Official Cash Rate higher than it needs to be or even continuing to raise it after inflationary pressures have abated. Interest rates are a blunt tool and the economic effects of getting the settings wrong can have far-reaching implications.

The Financial Times wrote on December that the success or failure of the RBNZ’s “ultra-hawkish” strategy will not become clear for some time. As a result, it risks overcorrection.

“The RBNZ is ‘driving while looking in the rear-vision mirror’ and risks missing the turn,” ANZ Senior Economist Catherine Birch told the Financial Times.

Under the heading “The RBNZ is hell-bent on hiking rates to hurt households and induce a recession,” Kiwibank’s economists on 28 November wrote; “we’re wary the RBNZ may overtighten and cause a sharper correction, or a deeper recession, with a greater pullback in house prices.”

If the danger is overtightening, getting reads on the CPI monthly, rather than every three months, could help the RBNZ avoid missing the turn.

The RBNZ has wanted monthly CPI data for almost a decade. It’s a high impact request without a high price tag.

Statistics New Zealand, which produces the CPI, told Stuff on October 28 that it “doesn’t have the funding or resources to provide monthly inflation figures”.

So, what would it cost to deliver a monthly CPI measure?

About $450,000 upfront, and another $600,000 to $1.3 million annually, according to Stats NZ's estimate in 2013. That’s about the cost of a median priced house in Auckland. But the real cost might be even cheaper in today’s world.

When the Australian Bureau of Statistics announced it would provide a monthly CPI indicator, it flagged that cost had previously been a prohibitive factor. But new data sources, such as scanner information and web-scraping, have made it possible to provide high-frequency data at lower cost.

It's possible these improved data gathering methods would be available here too. Stats NZ has completed a 10-year strategic overhaul focused on improving efficiency and productivity. Even if the cost today remains at up to $1.3 million a year, we would get a lot for the money.

A monthly CPI would identify a turn in the tide of inflation far faster than quarterly reporting. This would allow the RBNZ to start easing the tightening cycle before more economic pain is inflicted than inflation control can justify. Households and businesses would not have to handle higher rates than they may otherwise face.

In today’s high inflation environment with rapidly rising rates, this is critical information. Surely, that’s worth one Auckland house a year?