New Zealand Finance Minister Grant Robertson, upon return from his recent visit to Washington, stated, “We must bring inflation under control” in his interview with Bloomberg. This statement in conjunction with Government policies and the current economic and political climate, signals a potential for significant upheaval within the next quarter based.

Trend analysis of the existing economic indicators and Government intervention rhetoric identified three significant factors for upcoming social and economic instability.

GOVERNMENT URGENCY TO CURB SPENDING

Firstly, inflationary pressures are extensive today due to high levels of spending during the COVID pandemic. The Government substantive interventions with increased spending and debt were potentially more extreme and extended than originally intended.

Furthermore, numerous government leaders realising surges in spending caused some aspects of the current inflationary pressures, now are strongly indicating cut backs in both spending and subsidies. This counter-reaction offers the potential towards the opposite extreme, resulting in economic decline and instability.

Such reactive methodology applied by Government may result in pendulum swing in the New Zealand economy with earliest indicators being turmoil within the financial markets.

Addition evaluation of statements made by the Finance Minister, Grant Robertson, point to preparation by Government to integrate some aspects of austerity measures during this unique economic climate.

Trend analysis verifies that any major pullback on spending may potentially result in destabilisation of the current New Zealand economy.

Moreover, the underlying ideology that led numerous European countries to adopt austerity remains prevalent among leaders. Therefore trend analysis indicates a potential for macro-economic stagnation and rising debts due to this stagnation. Rather than decrease debt, austerity in historical cases caused further debt.

These were the results when austerity measures were applied in Europe, and may potentially be replicated to address currently interminable inflation.

INTEREST RATES ARE NOT THE MAIN DRIVER

Secondly, trend analysis indicates that interest rate rises performed by the New Zealand Reserve Bank, as with the Fed, will continue to be useful tools to moderately control inflationary pressures for the near-term.

The impact of the Reserve Bank policies, however prudent, may not be sufficient to counteract overall economic declines and upcoming market pendulum swings.

Although the moderate lifts in interest rates are presenting an initial inflationary cooling, the mid-term trend analysis identifies complications when this is performed in conjunction with forthcoming Government austerity initiatives. It will be readily verifiable whether these Government initiatives cause economic declines across sectors or are moderated to improve economic growth.

Trend Analysis Network also evaluated historical records to identify that significant economic downturns are possible when Government spending cuts are intensified in conjunction with interest rate hikes -- within the final quarter of a calendar year.

NEW COLD WAR DRIVING INFLATION MORE THAN GOVT SPENDING

Furthermore, trend analysis indicates that most of the recent inflationary pressures are no longer driven by COVID related causes, but by the expanding economic war between Western nations, Russia and China. The expansive war is creating far reaching and long term impacts on all commodity prices and distribution costs.

In next few weeks, trends indicate substantial instability and failure of critical trade and transport, further promoting inflationary pressures, especially on energy and food.

The global chaos, initiated primarily by this expanding and expansive proxy and trade war, will have growing influence not only on inflation levels but also on inventory levels -- causing instability that neither economists nor governments have the immediate tools to temper.

Moreover, this instability appears to be growing at a faster rate than anticipated.

The result is that the newly introduced measures by Government may be ex post facto responses. Moreover, if the Government policies do not take into account the expanding war the measures may be substantively counteractive.

CONCLUSION

Trends indicate that instability and major economic challenges here in New Zealand may potentially escalate over the next quarter, rather than the predicted coming year.

Critical to any improvements in stability will be the proper management of the accumulating pressures, including inflationary, with moderate and tempered approaches that help the economy remain function across sectors.

Government spending should be reduced gradually without major cutbacks, while the Reserve Bank takes on the challenges associated with inflation through its moderate interest rate rises. Furthermore, trends show an increasing need for energy and transport subsidies by the Government to ensure sector price stability.

Finally, critical infrastructure support projects and on-shore inventory improvements must be supported by the Government or essential services and economic stability will decay.

Trend Analysis Network is a think tank based in New Zealand created to identify and publish analytical results of future trends in politics, society, and economics.

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