FALLING PRICES.

Press, Volume LXVI, Issue 20025, 5 September 1930, Page 15

FALLING PRICES.

CONTRIBUTING FACTORS. HOW DOMINION IS AFFECTED. How the prosperity of the Dominion lias been materially affected by the universal declino in prices and by facors which to those unfamiliar with economics might seem very remote—the boycott of British goods in India and the fall in the pried of silver—is explained in the economic bulletin dealing with "Overseas Trade" adopted by the Canterbury Chamber of Commerce last evening. It states:— „.^ h ° e ? ect . B of tho world-wide fall in prices of primary products are indicated in the decline in the value of. New Zealand exports for tho twelve months ended June 30th, 1930. For this year exports amounted to £47.6 millions and imports to £48.8 millions. The following table shows the relative values of exports and imports for successive years ending with June:—

Excess Escess \°\ r of of ended Kx- lin. ex- im- ," c : portß. ports, ports, ports. 1»26 .. 57.4 50.3 6.5 192(5 .. 46.3 52.1 5.8 1927 ... 46.4 47.4 JQ 1928 .. 55.6 43.5 12-l 1929 .. 56.2 46.5 0.7 1930 .. 47.6 48.8 1.2

. N.8.--These figures refer to "visiblo" items of overseas trade, viz., exports and imports of actual goods as recorded in the official trade returns. It is important to remember that Our exports should exceed our imports by several million pounds sterling each year in order that overseas interest payments may be met without additional borrowing abroad. From this it is seen that, though the past period of twelve months has resulted in an "unfavourable" trado balance of £1,2 millions, the relative fall in export values is not as great n9 that of 1926 and is more than offset by tho "favourable" balances of 1928 and 1929. Tho general trend of overseas trade is more fully set forth in the next table, which gives totals for complete years ending in successive quarters:—

Excess Excess of of Year Ex- Im- ex- imonded. ports ports, ports, ports. 1925 March .. 54.8 49.8 5.0 June .. 57.4 50.9 6.5 Sept. .. 55.7 50.6 5.1 Dee. .. 55.3 52.5 2.8 1926 March .. 48.7 53.0 • 4.S June .. 46.3 52.1 5.8 Sept. ♦. 48.4 51.G 3.2

Dec. .. 45.3 49.9 4.6 1927 March .. 45.7 48.2 2.5 June .. 46.4 47.4 1.0 Sept. .. 45.8 46.2 0.4 Dec. .. 48.5 44.8 3.7 1928 March .. 54.9 44.4 10.5 June .. 55.6 43.5 12.1 Sept. .. 56.2 44.1 12.1 Dec. ..-56.2 44.9 11.3 1929—~ March .. 57.1 45.1 12.0 Juno .. 50.2 46.5 9.7 Sept. .. 56.2 48.2 8.0 Dec. .. 55.6 48.8 6.8 1930—March .. 49.0 49.1 0.1 June .. 47.6 48.8 1.2

The table brings out clearly the favourable conditions of trade in 1925, followed by the two unfavourable years of 1936 and 1927, the marked improvement during 1928 and 1929, and the trade recession since then. Throughout these periods the expansion and contraction of purchasing power due to rise and fall of export values are reflected in changes in the value of imports, there being a "lag" of several months between the movement of export values and the subsequent change in import values. It is noticeabloj too, that though export values rose greatly during 1928 and 1929, the corresponding increases in import values were relatively smaller. Evidently the increased purchasing power arising from expansion of export values during these two years was partly used in the reduction of debts and the bui!dinz up of reserves rather than in the demand for goods And services. Consequently, trade recovery was slow, but a areater degree of economic stability was achieved, making it possible to meet the present trade depression with less economic strain. Principal Exports. A comparison of the volume and value of each of the chief exports for the last two years is made in the following table, the figures representing thousands and each twelve-months period ending on June 30th: — Quantity. Value A. 1928- 1929 1928- 192929. 30. 29. 30. Wool bales 688 558 15,928 8,156 Butter, cwt 1,567 1,818 12,745 13,022 Lamb, cwt 1,880 2,014 6,926 6,885 Cheese, cwt 1,661 1,676 6,890 6,361 Mutton, cwt 961 1,021 1,050 2,042 Sheepskins, No. 9,909 10,970 1,937 1,670 Sausage-cas-ings, lb 3,575 4,201 688 7SO Apples, lb 32,172 56,212 448 725

The most notable fall in values is that of wool, In which a pet unit price fall of 36 per cent, occurred. The reduction of nearly eight millions sterling in the "wool cheque" of the pominion is to some extent offset by the smaller export duo to some wool being held over owing to the low prices offered. A price decline of 12 per cent, in butter is more than offset bv the increase in quantity exported. Mutton, sausagecasihgs, and apples aho show inoreaaoa in both volume and value of exports, while Increases also occurred in quantities of lamb, cheese, and sheepskins, though not sufficient to counter-balaneo the fall L price in each case. It is evident that one of the principal factors operating to reduce the intensity of the depression arising from the fall in prices of primary products is the increased volume of exports made possible by more efficient methods of production. The present economic crisis would obviously have been much more serious if the fall in prices had not been considerably, offset by increased production. The toad to economic recovery and future prosperity is elearly dependent upon "the provision of those conditions tnat make possible an increase in per capita proattetion adequate to counter-balance falling prices.

Money and Banking. The close relationship between overseas trade balances and credit conditions in New Zealand is shown In the following bank returns for June quarters since 1025: . (£ millions.) Excess Excess of of. June De- Ad- de- - adquarters. posits, vances. posits, vances. 1925 .. 51.5 48.9 10.6 1926 ~ 52.6 48.7 8.9 1927 .. 49.8 50.7 0.9 1928 .. 54.9' 45.4 9.G 1029 .. 59.8 47.4 12.4 1930 58.0 54.1 4.8 The most notable change indicated by this table is the large increase in advances during the last twelve months, due partly to fall i* export

values, partly to expansion of imports, and also to the financing of woolclips withheld from sale owing to low prices. The following table shows quarterly averages of total deposits and advances during the last two ydtirs in £ millions:— Advances Exand cess of Total de- dis- deposits. counts, posits. 1928—• Juno .. 54.9 45.4 9.5 Sept. .. 54.3 45.1 9.2 Dec. .. 53.7 48.1 5.G 1020 March .. 58.2 40.4 11.8 June .. 59.8 47.4 12.4 Sept. ». 57.4 , 49.5 7.9 Doc. .. 55.0 03.8 1.2 1980— March .. 57.5 53.6 3.9 June •. 58.9 54.1 4.8 A significant feature of banking figures during the last few years has been the large proportion of free to fixed deposits. This is shown in the next table, in-Which a comparison is made between amounts of free and fixed deposits, excluding Government deposits. Percentage of June Free to Quarters. Tree. Fixed. Fixed. 1025 30.5 21.0 146 102(5 37.6 20.7 133 192? 24.7 21.7 114 1928 25.3 27.6 02 19JJ9 26.8 30.2 89 1930 23.2 30.5 76

In spite of the favourable trade balance of 1028 and 1929, the percentago of free to fixed deposit# continued to fall and at present there is an abnor* mally large proportion of liquid capital on fixed deposit. This is evidence of uncertainty and lack of confidence in the prospects of profitable returns from investments to business enterprises. Investors at the present time are evidently inclined to "play safo" and invest their surplus funds in fixed deposits or gilt-edged securities. State of Business. Bank debits, which provide one of the best indicators of business activity, show a decline of 10.4 par cent, for the month of June, 1830, as compared with June 1929. Other evidences of trade depression are a falling oft in totalisat-

Or investments, in building permits, and In land transfers. The continuance of a large volume of unemployment also indicates economic maladjustment. As in almost all other countries, our producers are Buffering from the disparities in price changes of different groups of commodities, tho fall in export prices being much greater than that of retail prices, so that the prices of the goods they sell in world markets are much lower than the prices of the goods they buy. Trade recovery in New Zealand depends partly on the return of prosperity in our overseas markets,- and partly on the improvements that we are able to make in the organisation of our own productive activities and in the reduction of overhead expenses. Various factors have operated to delay the business recovery that was anticipated this year in England. Among others are the fall in price of silver, which reduced the power of Asiatic peoples to make their usual demand for imports from Great Britain, and more particularly the boycott of English goods by the people of India, a country which is normally England's best customer and which ab sorbs about 11 per cent, of the total exports of Great Britain. Such factors as the raising of tariff barriers and the adoption of schemes of price control by national and international cartels and combines also operate to delay readjustment to market changes. A high degree of Inequality in the gold holdings of the central banks of different countries, and the failure to establish a practicable international policy that will enable credit to be expanded sufficiently to provide for world mone tary requirements in face of decreasing gold production also add their quota of uncertainty as to tho future trend of world prices. On the other hand there are several features of the overseas business situation that suggest trade improvement. Low prices for raw materials are likely to increase demand, the continuance for very low money rates is favourable to business expansion, and great advances are being made in industrial reorganisation aiming at elimination of waste and improvement of efficiency. These changes will probably make for a permanent lowering of tho prices of the goods which we require to import, and will help to reduce the costs of our export industries. We must, however,

be prepared to adjust our economic conditions to a lower level of world prices. In New Zealand.' There are several factors that arc favourable to our economic progress. We have a high ratio of natural resources to population, and the recent increases in the volume of production of exports furnish evidence of the possibilities of expansion of our exportable surplus of primary products by more efficient methods of production, marketing, and business organisation. Our credit is doservedly high in the London capital market, thus facilitating adjustment of our national loans as they mature. There is a largo supply of local capital available industrial expansion when conditions favour return of confidence in business stability. Our banks hold an unusually large proportion (over 100 per cent.) of cold reserves against note issue. A reduction of all money rates, deposits as well as overdraft, and also of the high rates now offered for loans for public bodies would help materially to direct the flow of liquid capital into business enterprises and to stimulate business recovery. Tho high exchange rates now prevailing between Now Zealand and London increase the difficulties of importers, and tend to raise priceß of imported goods. The abnormal rise in sterling exchange is probably due to Australian difficulties rather than to my adverse condition arising from Zealand's balanco of payments. The disadvantages of high selling rates for New Zealand drafts on London are, from a national point of view, largely offset by the correspondingly high buying rates, which are favourable to exporters. As a temporary measure to meet an abnormal situation, they are probably justifiable, but the fact that wide fluctuations in exchange rates are possible so long as our monetary standard is still governed by emergency war legislation again raises the interesting question of an early adoption of a gold bullion standard or a sterling exchange standard with the range of variations of exchange rateß limited by the "gold points." _