Cost of living: Seymour lashes out at Government, accuses Reserve Bank of being 'asleep at the wheel'

ACT Leader David Seymour is lashing out at the Government after the Reserve Bank hiked the official cash rate by 50 basis points for the second time in a row. 

On Tuesday, the Reserve Bank (RBNZ) increased the OCR to 2 percent - the highest since 2016. 

It said the hike was needed to keep price stability and support maximum sustainable employment.

The RBNZ also warned this probably won't be the last hike in the near future. It comes after several increases in the OCR over the past eight months. 

In April, the Reserve Bank lifted the OCR by 50 basis points to 1.5 percent. Before that, it increased it by 25 basis points to 1 percent. The OCR dictates how much it costs to borrow money and increasing it results in higher mortgage rates. 

Speaking with AM on Thursday, David Seymour said the increase is going to hit everyday Kiwis hard. 

"People are getting hammered, especially with this latest mortgage rate rise on top of rising costs of everything else they buy," he told AM Early's Bernadine Oliver-Kerby. 

The ACT leader lashed out at the Government accusing it of being on a "spending binge" and forcing the Reserve Bank to be "asleep at the wheel". 

"Inflation is too much money chasing after too few goods. We have too few goods because we have pre-departure testing, we have slow immigration, we have isolation periods that are unworkable slowing down production. Then we've got a Government that is on a spending binge - $5.9 billion of extra spending, that adds in there."

"Then we've got a Reserve Bank that has been asleep at the wheel partly because they're not doing their job, frankly, but partly because when this Government was first elected they basically said to the Reserve Bank, 'Don't worry about inflation' and took away the law that said the Reserve Bank must only focus on inflation."

He said the Government has to change the COVID-19 rules, rein in spending and put the Reserve Bank's focus back on inflation to stop costs spiralling out of control. 

"We have got to get rid of unworkable COVID rules, stop spending like drunken sailors in the Beehive and then put the Reserve Bank's focus back on fighting inflation, the way it was before Labour came in."

Seymour's not the only one who has accused the Government of hobbling the Reserve Bank in its efforts to fight inflation. National leader Christopher Luxon has also suggested the Government's changes are partly to blame for high inflation. 

In 2018, the Government introduced a requirement for the RBNZ to manage monetary policy in a way that contributed to supporting maximum levels of sustainable employment. This has raised a dilemma for the RBNZ over what it should do if faced with the choice between letting inflation get too high or increasing interest rates and possibly damaging employment. 

And it's not the only new requirement. Since 2021, the Reserve Bank has also been required to consider the impact on the housing market when making decisions. 

Prime Minister Jacinda Ardern has previously denied claims the Government's spending is to blame for inflation. 

Her comments came after former National MP Simon Bridge and Seymour both blamed the Government's record spending during the COVID-19 pandemic for inflation.

"Grant Robertson's spending has been 40 percent higher throughout his time as Finance Minister than it was under National. This year he's planning to increase that to a staggering 68 percent at $128 billion, with $6 billion in new spending," Bridges said in January. 

Despite criticising Labour for spending too much, National said it would have also used the $6 billion spending allowance if it was in power.

Seymour added: "The Government's relentless borrowing and spending has added to the cost of just about everything. Locking the economy down and borrowing $50 billion so far has left us with a mountain of debt and rising prices."

But Ardern disagreed. 

"I refute that, I absolutely refute that," she told reporters. "The alternative, if they're proposing it, is that we should not have had a wage subsidy in place, and that is what has helped cushion the blow of the pandemic in New Zealand.

"There's a reason the United States has even had inflation surpassing these rates announced today. Particularly what we're seeing in oil prices and international tensions that affect those oil prices, are a contributing factor." 

It's a view shared by ASB. The bank said extra spending in the Budget to help Kiwis with the cost of living is unlikely to have much of an effect on inflation.

"While the extra spending will add to inflationary pressures, we think the effect will be at the margin given everything else going on," the bank said.

Several countries around the world are experiencing high inflation rates as they begin their recovery from the COVID-19 pandemic.