“Acceleration” of retail prices

Press, Volume CX, Issue 32439, 28 October 1970, Page 1

“Acceleration” of retail prices

(New Zealand Press Association) WELLINGTON, October 27. It was of serious concern to the Government that the rate of increase of retail prices as measured by the consumer price index had accelerated, the Minister of Finance (Mr Muldoon) said in Parliament tonight.

In December, 1969, the price index was some 4 per cent above that of a year earlier. By September, 1970, the index was more than 6 per cent above the level of September, 1969, he said.

The Budget in June was designed to preserve the economic strength of the country, which had been built up since the very trying and depressed conditions of 1967. The short-term economic objective of the Budget was to ease the pressure of mounting spending on resources. The main fiscal instrument was the mtroduction of a payroll tax, and this

was reinforced by various measures to regulate the growth of credit and to increase the supply of goods. At the time, he said, the Government had hoped that discussions which had been initiated with organisations representing employers and employees would result in an agreement which would substantially reduce the rate at which prices and incomes were growing. “Unfortunately, these discussions have not been brought to a successful conclusion in time to prevent a further sharp upward mqvement in the wage-cost spiral,” the Minister said. COST OF IMPORTS

Many industrial nations were at present experiencing serious inflationary pressures which had resulted in a marked increase in the price of imported manufacturing goods. The continuing strong international demand for meat had also been reflected in rising internal meat prices. “The buoyant demand for meat, however, has not been sufficient to bring a compensatory increase in our export prices, mainly because wool prices have continued to deteriorate,” said Mr Muldoon.

“Only by improved productivity can we make up the drop in our ability to buy goods as a nation.” The second force was that incomes had risen so much faster than output that they had pushed up domestic prices. “There is little we can do about import prices,” Ihe said. “But we must attempt to keep to a minimum the cost and price increases generated : within New Zealand if our exporting industries are to remain competitive.” WAGE PAYMENTS Mr Muldoon said salary and wage payments this year were estimated to be about 15 per cent more than last year. The nation’s output had been rising much i faster than in recent years

and could now be growing by as much as 6 per cent a year.

“This rate of increase, however, is nowhere near the rise in incomes,” he said. “In effect we are attempting to pay .ourselves over $2 of extra money for every $1 of increased production. Price increases in these conditions are inevitable.” New Zealand’s external accounts were still showing a significant surplus. Foreign exchange reserves were at record levels and continuing to rise, and were backed by the full range of drawing rights available from the International Monetary Fund. “Any measures we take now will be dictated not by trends in our external accounts, but by the need to achieve balance in the domestic economy,” he said. The cost-price spiral was already eroding the competitiveness of'the export industries. “Our pastoral export industries are now facing increases in costs as a result of excessive wage increases- which cannot be recouped through increased productivity and the purchasing power of their net income has been reduced.