After recent extended efforts to moderate this economy, policymakers might need to apply the brakes in response to rising consumer prices. This could be very disruptive, risking loan defaults, poor bank balance sheets, capital controls, exchange rate tensions, import protection and a regional slowdown. One effect would be to hit industrial commodity prices.
A disruption of this magnitude would have another undesirable effect: knocking Australia’s terms of trade, and exposing rising imbalances in that country. New Zealand would lose the advantage of the China/Australia growth locomotive that has helped drive our own export demand over the last twelve months.