Thursday, 13 October 2016

A picture is worth...

What is it about graphs?

We're supposed to be living in a new world of 'dataviz' journalism where bright young things are taking data and doing clever stuff to it and turning it into attractive visualisations with insight and oomph. And some people are, like the folks at But as far as I can tell nobody in the major mainstream or social media has run with any of the graphs that the Reserve Bank's John McDermott included in his speech on Tuesday, 'Understanding low inflation in New Zealand'.

So here are some of the more interesting ones.

This is where inflation (or the lack of it) has been coming from, by sector.

Ex sin taxes on fags, and ex anything to do with housing (admittedly a fairly large 'ex' to 'ex'), there's precious little inflation around. Some of that is pure luck (world oil prices). And some of it, I'm pleased to say (wearing my 'competition is good for you' hat), is down to stronger competition in areas like air travel and (especially) telecommunications.

Here's another way of looking at it - roughly speaking, how much of our inflation is coming at us from world markets ('tradables') and how much we're creating in our essentially domestic markets ('non-tradables').

You'll notice that we're not generating much inflation of our own. John's not convinced that there's anything long-term about this, and reckons that there's cyclical stuff happening that explains it. Me - I'm not too sure. I suspect that the GFC put the fear of God into many business decision-makers and households, and the impacts haven't worn off yet: we could have inherited a change in behaviour that is more 'structural' than cyclical. It could be that greater caution about raising prices or asking for a pay rise helps explain why we're raising prices more slowly than we would have in previous cyclical upturns. We'll see.

Another interesting one is this age breakdown of net migration

You might have had some preconception, especially given the publicity around the government's recent move to tighten up on 'family reunion' style bring-in-your-mum-and-dad-too immigration, that there was a lot of it about. There is some, and the number of older people coming in has been rising, but the reality is that by far the largest parts are younger people, and people in their prime earning years. John raised it in the context of different age breakdowns having different effects on inflation: more younger people (as at the moment) have a smaller impact on inflation than more older people.

And finally, there's this, which shows the Reserve Bank's history of trying to guess where the Kiwi dollar is going next (in overall trade-weighted value).

There will be those who will use this to poke the RBNZ in the eye, and I'm kinda bemused myself. It's odd that everywhere you go, from central banks to surveys of businesspeople, people (and I've done it too) keep making the same rather mechanical forecast: if the exchange rate is going up, it'll go up a little more, but then fall, and if it's going down, it'll drop a bit more, and then go up.

But it's a seductively easy thing to do, especially if you believe the exchange rate has wandered away from the One True Level where it needs to be, and that sooner or later it will revert to it. Easy - yes. Accurate? Not so much.

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