[et_pb_section fb_built=”1″ admin_label=”section” _builder_version=”3.22″][et_pb_row admin_label=”row” _builder_version=”3.25″ background_size=”initial” background_position=”top_left” background_repeat=”repeat”][et_pb_column type=”4_4″ _builder_version=”3.25″ custom_padding=”|||” custom_padding__hover=”|||”][et_pb_text _builder_version=”4.4.4″ hover_enabled=”0″]<\/p>\n
The big announcement this month is that I am standing for the Bay of Plenty Regional Council. If you are in Tauranga I would appreciate your vote. It is a postal vote so you have to find a postbox but I will aim to make it worth your while.<\/strong><\/p>\n Please log on to my Facebook Page at <\/span>https:\/\/www.facebook.com\/ronscottJP<\/span><\/a> or have a look at my personal website: <\/span>https:\/\/www.ronscott.co.nz\/\u00a0<\/a><\/span>to learn more.<\/p>\n [\/et_pb_text][et_pb_text admin_label=”Text” _builder_version=”4.4.4″ background_size=”initial” background_position=”top_left” background_repeat=”repeat”]<\/p>\n <\/span><\/p>\n <\/span><\/p>\n \u201cInflation is always and everywhere a monetary phenomenon, in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.\u201d<\/span><\/strong><\/p>\n That famous quote from Milton Friedman basically says that if you keep printing money, or people keep borrowing money, but the amount of stuff to buy doesn\u2019t keep up then prices will rise. On the other hand, if production really explodes, or people start to repay their borrowings then prices might even fall. (That is one of the reasons we track credit card debt in our statistics table every month).<\/span><\/p>\n The most obvious example of this at the moment is the shortage of good staff. As a result their \u201cprice\u201d (wages) are increasing (also shown in our statistics table below).<\/span><\/p>\n We report the rate of inflation with indices such as the Consumer Price Index (CPI). The CPI collects the prices of a basket of goods and services and compares prices to see what the average change is. Remember though that this is an <\/span>average<\/span><\/strong>.<\/span><\/p>\n <\/span><\/p>\n Averages sometimes hide some facts. Below is a graph of price changes in the USA. The black line is the CPI rate. The coloured lines are the changes in process of the various goods and services that go to make up the CPI. As you can see some prices rose dramatically. The price of petrol (gasoline) fell a couple of years ago but this year has rocketed in price. In both instances the rate of change was very different from the headline number.<\/span><\/p>\n <\/span><\/p>\n What should boards be doing when faced with the numbers we are hearing in the media?<\/span><\/strong><\/p>\n Here are some ideas<\/span><\/p>\n 1. Study history<\/span><\/strong><\/p>\n Anyone under the age of 40 won\u2019t remember the last time we had inflation levels so high. I suspect none of the current government was around which might explain why they are at a loss as to how to deal with it \u2013 or understand their part in creating inflation by printing money. The last time someone was at a loss we had what became known as Muldoonism which included price freezes. I shudder when I hear some people suggesting the same \u201csolutions\u201d today.<\/span><\/p>\n Find out how your industry coped last time.<\/span> <\/span><\/p>\n <\/span>2. <\/span>Study maths<\/span><\/strong><\/p>\n This is important when a business is considering its pricing strategy. I have included a chart showing what has happened in NZ. Food, housing and car costs make CPI worse while clothing and education costs have barely moved. If you sell clothes how do you respond to your staff wanting a pay rise because their rent and transport costs have gone up 2% in the last 3 months but you can\u2019t put your prices up in the shop?<\/span><\/p>\n A reminder.<\/strong> Strategy should take account of a range of influences. We discussed that in a previous newsletter. Today we are concerned with inflation i.e. sustained increase in prices.<\/span><\/p>\n <\/span><\/p>\n 3. <\/span>Study economics<\/span><\/strong><\/p>\n <\/span><\/p>\n 4. <\/span>Study current events<\/span><\/strong><\/p>\n <\/span>5. <\/span>Study the future<\/span><\/strong><\/p>\n <\/span><\/p>\n <\/p>\n <\/p>\n<\/b><\/span><\/h2>\n
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UNDERSTANDING INFLATION<\/b><\/span><\/h2>\n
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