INFLATION IN DOMINION

Press, Volume LXXXVII, Issue 26441, 7 June 1951, Page 6

INFLATION IN DOMINION

WARNING GIVEN BY BANK ECONOMIST CALL FOR REDUCTION IN SPENDING (New Zealand Preu AUOCUMon) WELLINGTON, June 8. “The situation has arrived in New Zealand where, if inflationary pressure on prices is to be reduced or eliminated, something must be done to reduce expenditure.” said Mr Alan R. Low, economic adviser to the Reserve Bank of New Zealand, at a luncheon meeting to-day of the Society of Accountants.

Mr Low divided aggregate expenditure into four group*:—expenditure for consumption purposes, private expenditure on investment, Government spending on current goods and services, and Government capital expenditure. “Some or all of these items must be reduced, and any measures adopted to So this are likely to be unpopular," e said. It meant that someone’s spending plans would have to be curtailed, their prospects of profits reduced, and their Speculative activities frustrated. “The trouble is we are demanding too much of our economic system,” he laid. “We are trying to maintain a high and rising standard of living, at the same time devoting a large part of our resources to improving our capital equipment.” Both could not be done at the same time, unless production Increased correspondingly, said Mr Low. As output Increased slowly the only thing to do was to spend less. If the public did hot do that voluntarily ana exercise more restraint in spending, the Government would have to do it by making it harder to spend. The main responsibility lay with the public. Any approach to the problem of inflation based simply on the volume of money was not likely to be adequate. Measures could be taken to reduce the volume of money, and if that was done to a sufficient extent there would undoubtedly be some relief. Danger Seen in Course “It would even be possible by taking sufficiently drastic action so to reduce the money supply that deflation and unemployment would result, though I am not suggesting such a CO mT se s hould be taken, said Mr Low. There was no guarantee, however, that this would reduce the desire to spend. The effect could be merely to increase the average turnover of money, leaving total expenditure unchanged. Mr Low appealed to the accountants present to influence the business community to show greater restraint in the use of bank drafts for any purpose. The extra credit involved was adding to the money supply and adding to the inflationary pressure on prices, he said. It was unwise for companies to increase the ratio of their borrowings on overdraft to their shareholders’ funds It was undesirable from the point of yiew of the trading banks, the companies, and the public. If accountants could do something to influence companies in that matter it would be better for the business community and the country as a whole, by reducing the demand for bank advances and thus reducing inflationary pressure.