A reader has kindly reminded FCK of Parliament’s Inquiry into the future monetary policy framework, reported just over a year ago, when Labour had a majority on the Finance and Expenditure Select Committee. The report, written at the direction of former Minister of Finance Dr Cullen, was intended to re-enforce Labour’s commitment to bipartisan support for price stability and inflation targeting. Goff’s speech yesterday repudiated that commitment.

The key findings of the committee were (emphasis by FCK):

• confirms the importance of maintaining price stability as a vital component of a healthy and well performing economy.
• agrees that monetary policy remains the primary means for maintaining price stability.
• acknowledges that the Policy Targets Agreement between the Minister of Finance and the Governor of the Reserve Bank of New Zealand recognises the important role price stability plays in supporting the achievement of wider economic and social objectives, and that it requires the Reserve Bank, in pursuing its price stability objective, to operate monetary policy in a manner that avoids unnecessary instability in output, interest rates, and the exchange rate.
• acknowledges that New Zealand’s monetary policy approach, emphasising central bank independence and inflation targeting, is standard among, small, open, and developed economies.
• acknowledges that New Zealand’s monetary policy operates in a similar manner to countries with wider mandates, such as Australia and the United States.
• acknowledges that at times of strong inflation pressures, the costs of maintaining price stability are often borne disproportionately by the export sector.
• acknowledges that a range of economic factors and resource constraints have contributed to recent inflation pressures and to how quickly monetary policy has affected inflation outcomes.
• acknowledges that factors other than monetary policy—such as sustained improvement in trend productivity—play a key role in lessening the adjustments required to maintaining low inflation over the medium term.
• believes that constraints on the availability of natural resources, particularly crude oil, are likely to be increasingly significant contributors to inflation.
• heard extensive evidence concerning supplementary stabilisation instruments, such as a mortgage interest rate levy, an interest-linked savings scheme, and other taxes that might complement interest rates in managing inflation, but did not find the arguments
  in their favour compelling enough to support them being pursued further at this time.

What’s fascinating is that Labour are now essentially repudiating their own inquiry, or at least arguing that price stability has a much great affect on the export sector and that it is incompatible with “wider economic and social objectives”. The question is, why? Charles Chauvel should have enough of a background in business (being a former board member of Minter Ellison Rudd Watts and Meridian Energy) to know that price stability is important to all sectors of the economy.

Update: The inquiry was not directly by Michael Cullen. Mea culpa.