OCR Hike 'Like Performing Open-Heart Surgery with a Hammer'

The current approach to managing inflation in New Zealand is being criticized for its ineffectiveness and potential harm. The Reserve Bank's policy of hiking the OCR (official cash rate) to 'cool' the economy has been likened to performing open-heart surgery with a hammer, as it can cause significant trauma to everyday citizens.

Proponents of this approach argue that higher interest rates will reduce consumer spending and slow down businesses, thereby reducing inflation. However, critics point out that this approach is too simplistic and ignores the complex causes of inflation.

The problem with the current model is that it misdiagnoses the cause of inflation as 'too much spending' rather than acknowledging the role of global supply chain chaos and corporate profiteering. By punishing consumers with higher interest rates, the Reserve Bank is essentially increasing unemployment to maintain a 'buffer stock' of unemployed people.

This approach has a number of negative consequences, including regressive wealth transfers that benefit wealthy deposit-holders at the expense of indebted households, mortgage holders, and small businesses.