A leading New Zealand economist is warning Kiwis that inflation caused by Government spending will come through in the "next year or so".
This warning comes after the previous Consumer Price Index (CPI) figures released in January showed annual price inflation between the December 2020 and December 2021 quarter had hit 5.9 percent - the biggest annual jump in three decades.
That's predicted to rise even higher and cross the seven percent mark when the latest CPI figures are released on Thursday.
Leading economist Shamubeel Eaqub told Newshub Late New Zealand has yet to see the impacts of Government spending on inflation.
"Most of the inflation so far has been on food, fuel and housing, so we haven't seen that impact of a lot of Government spending in the last couple of years because of the pandemic coming through to inflation yet," he said.
"We would expect to see that come through in the next year or so as the economy is still in a pretty hot state."
Finance Minister Grant Robertson thinks the record inflation levels are not because of Government spending, saying Kiwis don't blame him for it and insisting New Zealanders understand that this is a "global phenomenon".
"No I don't. I think that New Zealanders understand that this is a global phenomenon. They only need to see the headlines every night where we hear inflation in the US has gone over 8 percent, inflation in the UK has gone over 7 percent," Robertson said on Tuesday afternoon at the post-Cabinet press conference.
"They can see the war in Ukraine, they've heard about the supply chain constraints. They know it themselves because they've ordered goods that aren't arriving as quickly because ships aren't coming to New Zealand as quickly."
Robertson will deliver the 2022 Budget on May 19, where he will unveil $6 billion of Government spending.
Eaqub told Newshub Late as long as it's targeted on improving areas New Zealand is struggling in, then he believes it would be money well spent.
"As long as that spending is really focused on building the capacity and capability of New Zealand, then I think it's well-targeted," he said.
"We have huge deficits when it comes to infrastructure, health, education and welfare, so those are still things we need to fix.
"The real job here is for the Reserve Bank to raise interest rates so we don't have too much inflation, that's not really the job of the Government."
The Reserve Bank hiked the Official Cash Rate to 1.5 percent last week, with the central authority saying it needed to "reduce the risks of rising inflation expectations" and provide "more policy flexibility ahead in light of the highly uncertain global economic environment".
"The whole point is to make it harder for us to spend money. If you are saving money in the bank, they want it to be worth more to keep it in the bank," Eaqub told Newshub Late.
"What it really hurts is people with debt so people with mortgages, as it raises interest rates it becomes so painful that we have to cut back on spending on other stuff to be able to pay the mortgage and the theory and the practice is that it will slow the economy and reduce the ability of firms to raise prices."
With New Zealand experiencing a cost of living crisis, Kiwis have on average spent an extra $4000-$5000 in the past 12 months on basics including food, rent and fuel.
Watch the full interview with Shamubeel Eaqub above.
