Gathan Beaga

inflationary behaviour

The other morning B₂ asked a question that every parent dreads. One that inevitably leads to hours of patient and potentially embarrassing explanations, sometimes even with cryptic little line diagrams that seem to make little apparent sense.

“Dad”, she said, “what do they mean by funding our currency?”

“Uhhh…”, I said, “perhaps you can ask your mother…”

Damn Morning Report! Bother the media for making such a tricky subject such an open and public topic of conversation! And just how does one explain the carry trade to a six-year-old?

That it should be a topic of discussion at all is really my own fault. People like me probably irritate the NZ Reserve Bank Governor, Dr Alan Bollard. Here I am, not saving enough, busily borrowing from the apocryphal Japanese housewives and Belgian dentists to sustain my hedonistic and inflation-causing debt-fuelled lifestyle:

[…] we are consuming and investing much more than we are saving. […] the household sector, which represents a large part of the economy, has been running down its savings in spectacular fashion.

Yup, that’s me all right. The camera I bought the other week is, I imagine, a good example of the kind of consumption that’s sending this country to hell. I should really have been saving the $$$, probably by paying down the mortgage again.

And then there’s the exchange rate, which is relatively higher than it should be if we want our exporters to earn us hard currency.

But on the other hand, the high exchange rate should make imports cheaper, right? That’s got to be good hasn’t it?

I don’t usually think too hard about this stuff – I’m no economist – except that I ran across the same camera on Amazon the other day. And its quoted price in US dollars was pretty good:

camera price

But comparing this back in New Zealand, what I thought was a pretty good price:

the same camera at the, 1 August 2007

Now currently the exchange rate is around $1 NZ: $0.75 US. This means that our “good price” is currently US$1330, or over four hundred US dollars more than the current “good price” in the US itself. (Last week, the difference was five hundred US dollars… but that’s a different story.) In other words, the same camera costs almost 50% more in New Zealand.

Now I can accept that because of the size of our market, and the distance, and all that stuff, that we’ll always pay a premium over places like the US. But 50%? That’s bloody ridiculous. Someone’s making a bundle.

So I wonder: who is worse from Dr Bollard’s perspective? Me for buying the thing at such a silly price? Or the importer and retailer, for not passing on the huge gains handed to them by all the exchange rate rises over the last few months?

Me, no doubt. Yes, it was me.