The Reserve Bank Governor is hitting back at claims the Government's recent Budget spending is stoking high inflation.
It comes after National leader Christopher Luxon suggested the Government was contributing to high inflation by being "addicted to spending".
The Government has been under increasing pressure over its spending, high inflation and the cost of living of late. ACT leader David Seymour also blamed the Government for the increasing costs, suggesting it is spending like drunken sailors on AM this morning.
But Finance Minister Grant Robertson has denied the Government's spending is to blame, instead pointing to high demand for goods and services and global inflation.
It's a view that is shared by Reserve Bank Governor Adrian Orr, who told AM's Ryan Bridge on Thursday blaming Government spending for inflation was "too simplistic" and incorrect.
"I think that's far too simplistic and in fact wrong in a sense," Orr said when asked whether his job was made harder by the Government's spending.
"Government fiscal policies are both about long term infrastructure and all of the challenges, it is about making sure the current level of services can be supplied.
"There's so much complexity around the Government balance sheet. But without a doubt they are a big part of spending in the New Zealand economy, the recent Budget spending is up somewhat but when you look ahead, the actual impost from the Government's fiscal policy starts to wane over the next two years. There is a higher starting point and upward pressure on demand but then waning through time, so that is happening but it's a very small part of the total picture."
Orr said global inflation and supply constraints played a much bigger role in inflation than the Government's recent spending.
"The big picture going on is global inflation pressures and a lack of supply and that supply constraint is very evident in New Zealand, especially people.
"We have extremely low unemployment and scarcity of labour is the number one constraint on economics activity - we are growing faster than we can supply."
It's a view shared by ASB. The bank said the Government's recent Budget spending is unlikely to have a huge impact on inflation.
It comes after the Government announced low and middle income New Zealanders would be getting a one-off payment of $350 to help with high inflation and cost of living increases.
"While the extra spending will add to inflationary pressures, we think the effect will be at the margin given everything else going on," the bank said.
ASB also said the payment will help soften the inflationary blow on household budgets, but added that this is a band-aid and not a cure, and the responsibility of cutting the causes of inflation rests with the Reserve Bank.
It comes after the Reserve Bank hiked the Official Cash Rate by 50 basis points to 2 percent on Wednesday in an effort to tame inflation.
In April, the Reserve Bank lifted the OCR by 50 basis points to 1.5 percent. Before that, it increased it by 25 basis points to 1 percent. The OCR dictates how much it costs to borrow money and increasing it results in higher mortgage rates.
