Devaluation May Lift Prices 5 Per Cent

Press, Volume CVII, Issue 31564, 29 December 1967, Page 8

Devaluation May Lift Prices 5 Per Cent

Devaluation is likely to increase New Zealand’s domestic price level about 5 per cent over a full year, says the New Zealand Institute of Economic Research in its December quarterly predictions.

This takes into account the effect of devaluation on prices of imports, invisibles and exportable commodities such as meat. This price increase will add 8195 m to the total level of outlays. The report says that the average rate of increase on imports from devaluation is expected to be 17.5 per cent. If this is applied to the whole of the 1968 imports, forecast before devaluation to cost s64om, the total price i increase will be sll2m. However, assuming a diversion of imports from nondevaluing countries, and a diversion from imports to domestic supply, the price increase for imports is expected to be about slosm. The price increase on account of invisible payments made overseas will be ssom, the institute estimates. The institute assumes that transfer payments such as gifts and legacies will not change and that income from direct investment in New Zealand I will not be significantly afifected. Exports are expected to

cost about s4om more because of devaluation, giving the total cost caused by devaluation of 8195 m. In 1966-67 domestic outlay totalled 84098 m, so that the increase suggested is equal to almost 5 per cent, says the report.