Grant Robertson admits 'a difficult period' of inflation but 'we're not going to lower the price of food by cutting health spending'

Grant Robertson admits New Zealand is going through "a difficult period" when it comes to inflation and the cost of living - but insists cutting Government spending on key services such as health won't solve the issue.

And the Deputy Prime Minister/Finance Minister is confident New Zealand will come through the other side of the current economic situation - despite inflation being tipped to skyrocket above 7 percent this week. 

The previous Consumer Price Index (CPI) figures released in January showed annual price inflation between the December 2020 and December 2021 quarter had hit 5.9 percent - the biggest annual jump in three decades. That's predicted to rise even higher and cross the 7 percent mark when the latest CPI figures are released on Thursday.

Robertson, during an interview with AM on Tuesday, was asked whether the Government would further rein in its spending to tackle the rising inflation.

It comes as Kiwis grapple with the cost of living. New Zealanders have, on average, spent an extra $4000-$5000 in the past 12 months on basics including food, rent and fuel. 

"We always try to strike a careful balance with our spending but we're not going to lower the price of food by cutting health spending, and a big part of this [year's] Budget about how we set ourselves up for a new health system that's going to deliver to people wherever they live in New Zealand," Robertson said.

"Over the course of the last couple of years, we have invested significantly to support New Zealanders; that's the money we spent on the [COVID-19] wage subsidy scheme and the resurgence payment, and all these ways that we've protected and supported New Zealand households and businesses. I think New Zealanders have appreciated that.

"Our spending is now much more targeted when it comes to COVID and we will be careful about that, but the other side of the coin is we still need to invest in our health system, our education system, to build housing - we've got to keep doing that.

"I think New Zealanders understand there's a balance to be had here; you cut your nose off to spite your face if you decide to not build any more state houses for a few years because that just makes housing problems worse."

Grant Robertson.
Grant Robertson. Photo credit: Getty Images

Robertson said the Government would continue focusing on striking that balance.

"We won't attack the issues where inflation is the worse by not spending on health," he said. "All around the world, you're seeing inflation up at these levels."

Robertson said it was a global issue.

"We have to work hard in New Zealand to make sure that we manage that. The Reserve Bank has the job of keeping inflation down but we will also always take a careful and balanced approach when it comes to our spending.

Robertson, left, and Reserve Bank Governor Adrian Orr.
Robertson, left, and Reserve Bank Governor Adrian Orr. Photo credit: File

"Inflation is a global phenomenon and, clearly, rates of inflation are predicted to be not only at the record levels… for this quarter but now economists are saying perhaps into the second quarter of the year and then starting to come down from there.

"New Zealand's done well, we're well-positioned; we've got low unemployment, we've had good growth. This is a difficult period but we will come through the other side of it."

But there's no doubt New Zealanders will continue feeling the pinch for some time. According to independent economist Cameron Bagrie, the Labour Index Cost was also predicted to rise to about 3 percent.

"So 3 percent take away 7 [percent inflation], your cost of living is -4. So if you look at the typical household or wage earner out there at the moment, you're going back to the churn of about 4 percent - which is a pretty big hit to take over 12 months," Bagrie told AM.

On top of that, the Reserve Bank (RBNZ) hiked interest rates last week to cool down the housing market. Wednesday's 50-basis-point Official Cash Rate hike was to "reduce the risks of rising inflation expectations" and provide "more policy flexibility ahead in light of the highly uncertain global economic environment", according to the RBNZ.