Inflation at least 10% this year?

Press, 17 February 1978, Page 1

Inflation at least 10% this year?

New Zealand’s rate of inflation is likely to fall this year but unexpected factors, • such as wage orders, could upset calculations, the annua] conference of the Associated Trustee Savings Banks was told yesterday. Professor A. D. Brownlie, Vice-Chancellor of the University of Canterbury and a former chairman of the Monetary and Economic Council, pointed to low economic activity and the decline experienced by trading partners as major factors in a reduction of inflation. “But I would be surprised if it went below double-digit figures,” he said. Professor Brownlie was chairman of a panel discussing the financial aspects of the economy as they apply to the future of trustee savings banks. Professor Brownlie said he felt that the Prime Minister (Mr Muldoon) had perhaps concentrated too heavily on interestrate policy rather than growth in the money supply in his major address to the association on Wednesday. “This was intended, I believe. But concentration on interest rates has often led policy-makers in the wrong direction.” Professor Brownlie felt

that the focus of the Government should be to obtain stable growth in the money supply. Interest rates could be influenced by taking measures to persuade capital markets to have stable growth. He went on to discuss the belief that high interest rates are inflationary on the grounds that they lead to high costs. “If one moves to a flexible interest, rate policy, as the Government has. an increase in the level of rates, cost of production and prices will be seen in that year,” Professor Brownlie said. “But it is a once-only effect. There is no further addition to inflation rates.” The alternative was to try to maintain low interest rates in inflationary circumstances. But a continuous increase in the money supply results as people look for cheaper loans and that led to a continuous inflation rate. “Those who sponsor a low interest-rate policy should realise this,” said Professor Brownlie. The association’s research consultant, Mr M. Y. Walls, also said he believed that inflation was unlikely to reach single figures this year and might not go below 13 per cent.