In the early 1980s, New Zealand faced an inflation crisis that reached a staggering 16% by June 1982. Chris Trotter, a former union negotiator, recalls the struggle to keep wages in line with soaring living costs. After the defeat of Rob Muldoon’s National government, Trotter secured a 14% wage increase for retail workers, only to be met with disappointment when colleagues compared it to a 16% raise elsewhere.
The inflationary spiral was relentless. By 1985, under Labour Finance Minister Roger Douglas, the annual inflation rate soared to 15.42%. This historical context highlights how the post-Covid inflation peak of 7.17% in 2022, though concerning, was far from the worst New Zealand had endured.
Trotter’s story underscores the brutal methods used to curb inflation. Governments typically raise interest rates to reduce demand, leading to unemployment and suppressed wage demands. John Maynard Keynes proposed tax increases to curb demand, but political realities make this approach unfeasible. Instead, central banks now handle inflation, framed as a scientific rather than political issue.
The article also explores the paradox of stagflation, high inflation combined with high unemployment, caused by governments avoiding tax hikes. This was New Zealand’s situation in 1984, leading to a shift towards economic specialists managing inflation. The lesson is clear: while short-term pain may be necessary to achieve long-term economic stability, the harsh reality often falls hardest on working-class individuals.