Can we manage inflation without choking growth?

Can we manage inflation without choking growth?

Talk of the Reserve Bank raising the Official Cash Rate (OCR) to keep inflation under control needs to be balanced against the importance of ensuring that we also lock in to the economy a steady sustainable pace of growth, says Michael Barnett, head of the Auckland Chamber of Commerce.

“It hasn’t been that long ago that a downward spiral in business confidence bottomed out as a result of the global financial crises – GFC.

“With businesses starting to improve their balance sheets, employ more staff and take advantage of opportunities in the Christchurch earthquake recovery and Auckland housing expansion, the last thing the economy needs is for a rise in interest rates to begin a trend that chokes off our recent growth success,” said Mr Barnett.

It has happened in the past – it seems that every time we ‘recover’ and get growth up around 3% the Reserve Bank steps in and stifles that success and blames the very growth we want for adding to inflation.

“It affects the SME’s in particular.

“I would like to believe that in this growth-led cycle the Reserve Bank will be putting up interest rates slower than in the past, and doing so in a way that balances the need to control inflation with the equal need to maintain a steady sustainable pace of growth - and with it a high level of business confidence.”

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