Independent economist warns second half of 2022 will be tough, says Government needs to rein in spending

An independent economist says while the temporary fuel tax cut will come as a welcome relief to many, the financial pain is far from over. 

On Tuesday the Government announced it is slashing 25 cents per litre off fuel tax and halving public transport costs for an initial three months to help ease the financial pressure at the petrol pump. 

The tax reduction - expected to cost $350 million - will come into effect on Tuesday and save motorists $11-17 per average fill-up, depending on the vehicle. Halving the cost of public transport - expected to come into force from April - comes with a $25 million to $40 million price tag. 

The cuts come as other Government measures previously announced are set to kick in such as an increase to the benefit, minimum wage and Family Tax Credits in April, and the Winter Energy Payment in May. 

But Cameron Bagrie told AM while many Kiwis will welcome the extra cash, it might make things worse in the long run. 

Bagrie said fuel isn't the only product experiencing inflation and the Government needs to rein in spending if it wants to dampen inflation. 

"We are pump-priming it, The Reserve Bank by record low-interest rates, printing money and, of course, the Government has deployed a massive amount of cash in the last couple of years, for good reasons but we now need to rein  things in. 

"The Reserve Bank is reining things in by lifting interest rates and they need a little bit of help as well coming out of the Government. The last thing we want in an overheating economy is a big bang 2022 Budget and unfortunately, that is what we are going to get."

Bagrie told AM putting more money into people's pockets isn't the solution to high inflation. 

"If we step up there, we put more and more money into people's pockets, I think we're going to risk getting into the old spiral…where inflation goes up then all of a sudden you have to compensate on the other side through rising wages, the cost of various projects starts to escalate and low and behold you're on the treadmill going around and around."

He warned getting inflation under control likely means a tough year for many. 

"Taming inflation is not growth or asset price friendly so I think the second half of 2022 is going to be pretty tough and there is going to be a little bit of paying the piper. 

It comes after Consumer Price Index (CPI) figures released by StatsNZ in January showed the biggest annual inflation jump in three decades.

Annual price inflation (the difference between the December 2020 quarter and the December 2021 quarter), hit 5.9 percent, up from 4.9 percent in the previous (September) quarter. 

As a result the cost of living is skyrocketing with Prime Minister Jacinda Ardern finally conceding it was a crisis on Monday after declining to do so for a week.