STABILISATION

Auckland Star, Volume LXXIV, Issue 107, 7 May 1943, Page 2

STABILISATION

WHEN the economic stabilisation policy was introduced, on December 15, the Prime Minister likened it to "a collective bargain which the community is to njake with itself." If the prices of essentials did not ■•rise, then wages would not. If those prices did rise, then wages and other forms of remuneration must rise also, but the whole purpose of the plan was to avoid any marked fluctuation. The plan provides that in the event of a rise in prices exceeding 21 per cent the Arbitration Court shall make an order increasing rates of remuneration. Thereafter no general order will be made unless the rise in prices exceeds 5 per cent. The task of recording the level of prices of essential goods is in the hands of the Government Statistician, who is required to make statements after the end of each quarter. The task of keeping the price level down is the responsibility of the Stabilisation Commission and its officers. To-day it is announced that the rise in the prices of essential goods from December 15 to March 31 was 1.1 per cent, so that no application for a general order can be based on it. In effect, therefore, stabilisation has been successful in the initial period of its operation, though it is likely that succeeding periods will test it more severely. To many people an official statement that the increase in prices in the first quarter of this year was only 1.1 per cent is on the face of it absurd. They know from the prices they have actually paid that individual rises much greater have occurred. Such criticism is based on a misunderstanding of the nature of a price index. The "wartime price index" takes account of the prices of some forty essential commodities, and of no others. Moreover, not only the price of an individual commodity, but its importance or "weight" in purchases of the ordinary family is taken into account. For instance, it was recently stated that groceries had increased by 19 per cent, but, as groceries comprise only 10 per cent of the "weight" of items included in the index, this increase represents an increase in the cost of living of only 1.9 per cent. Even so the difficulty of keeping the increase below 21 per cent has not been slight, and the method adopted to keep it down should be known. The Labour Conference was informed, by the Hon. Mr. McLagan, a member of the Commission, that the cost of living had increased by H per cent. On that information reaching the Cabinet—apparently after the close of the first quarter—the price of potatoes was reduced by id per lb, and this reduced the cost of living by i per cent. This, Mr. McLagan said, would cost the Government £35,000 per month in subsidies. In effect, therefore, a price has to be paid for stabilisation, and it is paid by the taxpayers as a whole. As was foreseen at the outset of the scheme, the greatest task facing those who administer it is to ensure that all the stabilised goods are regularly available for purchase. It would be idle, and irritating, for the statistician to record prices of commodities which by large numbers of people were unobtainable. (It is for this reason that oranges are not included in the index list.) The first quarter of the operation of the plan was one in which vegetables were fairly plentiful. In the current quarter and the next, vegetables, and fruit, will be less plentiful, and as they represent an important part of every family's expenditure, and so have an important influence on the price index, a severe test will be imposed on the scheme. Problems of production, and also of distribution are involved. If the Government's production plans are adequate, then the test will be passed. If they are not,,it may prove impossible, unless by excessive subsidies, to keep the price-rise below 23 per cent.