Day: March 23, 2017

In sort of, kind of, half-hearted partial defence of Wellington City Council

Michael Reddell Wellington

That isn’t a stance that comes naturally.   Wellington City Council wastes money with the best of them (convention centres, possible runway extension, bike stands outside our church, and so on –  they even use ratepayers’ money to help fund the New Zealand Initiative) and presides over land-use restrictions that deliver increasingly high house prices.  And then there are more localised gripes – but which have managed to get quite a bit of national coverage –  like the Island Bay cycleway.

It was built without adequate consultation, and after it was built an overwhelming majority of participants in a well-run survey of residents conducted by the Residents Association told the Council they didn’t like it and wanted it gone.  There was never an obvious reason for it in the first place –  The Parade was one of the wider flatter safer streets in Wellington –  but the then Mayor lived in Island Bay and liked to cycle to work.   (It remains part of a grand vision of a cycleway all the way into the city –  key bits of rest of the route currently serviced by roads that are barely wide enough anyway).   And the only bit of the street I’d be a bit hesitant about cycling –  through the shopping centre, with reversing angle parkers etc –  is the only bit where there is no cycleway.  It has been a fiasco all round.  It is still relatively early days, but as someone who is mostly a pedestrian or a motorist, I suspect the overall environment is now more dangerous than it was (not very).  As a pedestrian, one suddenly finds the cycleway merging with the footpath (to get round bus stops).  As a motorist turning out of side streets it is materially harder to see oncoming traffic than it used to be.  And I’m not at all sure how people who live on The Parade, backing out of their driveways, cope.  It would probably matter even more if there were many cyclists, but on a nice autumn morning I just walked the length of the cycleway and didn’t see a cyclist.

The story is back in the news because a local dairy owner has decided to close his business, and blames the loss of short-term parking for a downturn in business (more than a few parks were removed to facilitate the cycleway).  Perhaps so, but I’m just a little sceptical.  Perhaps that is partly because it isn’t clear to me who uses dairies, even when parking is no problem, apart perhaps from school kids buying lollies.   I’m in the neighbourhood all day, and I might have used a dairy twice in a year.  But along the length of the cycleway –  a distance I just walked in 14 minutes –  there are six dairies (including the one planning to close soon) and a full-service supermarket (open from 7am to 10pm every day), for a population of around 7000.  There were only one or two more when I first moved here 40 years ago.  On one corner, two dairies face each other across the street –  and somehow seem to survive.  And actually, the dairy that is to close is the furthest from all the others, and the only one everyone has to pass coming into Island Bay from the city.  It is a little hard to believe that the ill-considered cycleway is the only, or even dominant, factor.  The Wellington City Council is guilty of many things, and a prima facie assumpton that they will be guilty of whatever they are charged with is often safe (don’t get me started on the walkway they currently have indefinitely closed to protect “heritage interests”), but perhaps not this time.

None of which excuses the inaction on the cycleway.  It was kicked beyond the election last year, even after the survey results had been released, and now we are told to expect a decision in six months time.  Meanwhile, of our two local councillors, one is off to become a member of Parliament –  unless perhaps the Greens find a more dynamic candidate, in this one of their strongest party vote seats –  and the other sees his future in Christchurch –  he’s running for Parliament for the Greens in Ilam.   The fear remains that the other councillors, the bureaucrats, and the cycling lobby  –  all keen on a whole network of cycleways –  will just wait things out and the monstrosity will be with us forever.

Agreeing with the Governor

Michael Reddell inflation, Monetary policy

If I go on finding myself agreeing with Graeme Wheeler, there won’t be much point writing about OCR announcements.  But, as it happens, he has only three more to deliver.

I could quibble about a few details in this morning’s announcement, but the only one I wanted to highlight briefly was this proposition

Monetary policy will remain accommodative for a considerable period.

In six months and a few days, the Governor will have moved on.  We’ll then have an acting Governor, with no Policy Targets Agreement, for six months.  And not until this time next year will we have in place a monetary policy decisionmaker, with an agreed target, who can make moderately credible statements about possible monetary policy decisions over the medium-term.    So to be strictly accurate,  that sentence should probably have read something like

“If the forecasts underpinning today’s decision are roughly right, and if my successors have (a) the same target I do, and (b) the same interpretation of that target, and the same reaction function, then monetary policy will remain accommodative for a considerable period.”

But in this post, I’m backing the Governor, and one line I was particularly pleased to see was this one (emphasis added)

Global headline inflation has increased, partly due to a rise in commodity prices, although oil prices have fallen more recently. Core inflation has been low and stable.

I made that point here a while ago, so I was pleased to see the Reserve Bank also highlight the  point.    Here is what I mean, using the OECD’s data on CPI inflation ex food and energy –  the one readily available and consistently compiled core inflation measure.

OECD inflation ex food and energy

I’m using monthly data, to be as up-to-date as possible, and New Zealand and Australia don’t have monthly CPI data.  But the comparable quarterly chart doesn’t look materially different.

I’ve shown two lines.  The first is the median core inflation rate for all individual OECD countries (with monthly data).  But that includes 19 euro countries (plus Denmark) that have only one monetary policy.  So the second line is the median core inflation rate for the distinct monetary policy countries/areas –  ie delete the individual euro area countries, and replace them with an inflation rate for the euro area as a whole.  I’d probably tend to emphasise that measure.

But on neither measure is there any sign that core inflation has been picking up at all.  And although the US has been raising its policy interest rate to some extent, there have been more cuts in policy interest rates in the last 18 months or so (the sort of time it takes policy to work) than increases.

Of course, that is only actual inflation outcomes.  Perhaps there is more inflation just ahead of us –  a story markets seem to have taken a fancy to.

For what it is worth, international agencies still thought there was a negative output gap across the advanced world last time they looked (the OECD thought it was -1.4 per cent last time they updated their published forecasts).

The unemployment picture –  another read on excess capacity and resource pressures -is a bit different.    For the G7 countries as a whole, the unemployment rate is now a touch below the troughs reached at the peak of the last boom.    For the OECD group as whole – even including places like Greece –  it is only around 0.7 percentage points higher than at the peak of the last boom.  For the median OECD country, the unemployment rate now only about half a percentage points above the average for the last boom year (2007).

Here are the unemployment rates for the largest OECD economies

U rates big countries

The unemployment rates have been falling for some considerable time, and there has been no pick up in inflation yet.  For each fall, of course, the respective NAIRUs must be getting closer, but it is probably safer to wait and see that core inflation has actually begun to rise –  especially in view of the low starting level –  than to simply assume that it must happen soon.

Of course, when one looks at unemployment rates what does tend to stand out is how little the unemployment rates in New Zealand and Australia have come down.

U rates NZ and AusIn both countries the current unemployment rate is around 1.5 to 1.7 percentage points higher than it was in the year or so prior to the global downturn.  And neither country was troubled by a domestic financial crisis, nor did they run out of room to use conventional monetary policy.  The monetary policy authorities should have been able to do better.   If I look across the monetary areas in the OECD (again replacing individual euro area countries with the region as a whole), the only places with a worse record on this score –  unemployment rates now compared to the pre-recession levels – are:

  • the euro area as a whole (visible in the first chart above) where they did run out of conventional monetary policy options,
  • Norway, and
  • Turkey, not a paragon of economic management or political stability.

Core inflation measures have been picking up a little here, as they should have after the sharp cuts in the OCR the Reserve Bank had to implement.    But our unemployment record –  at a time when much of the rest of the advanced world has been able to run unemployment rates back near pre-recessionary levels without (yet) seeing signs of core inflation rising –  is one reason why I think the Governor is quite right not to express any bias about the direction of the next change in interest rates, however far away (and delivered by a person yet unknown) that might be.