THE PRESS FRIDAY, AUGUST 17, 1979. Estimate of inflation

Press, 17 August 1979, Page 12

THE PRESS FRIDAY, AUGUST 17, 1979. Estimate of inflation

The 14.3 per cent inflation rate forecast by the Organisation of Economic Research and Development for New Zealand may well prove to be an accurate figure and therefore makes depressing reading. The two biggest unknown factors ahead are the size of the settlements in the present round of wage negotiations and the price of oil. Neither of these is likely to make the estimate of inflation less. Earlier in the year it seemed likely that the awards would be settled for about 10 per cent, which with the cost-of-living increase of 4.5 per cent would make the over-all increase less than 15 per cent. Higher settlements might mean that the overall increase is closer to 17 per cent or 18 per cent. That would certainly push up the rate of inflation to more than 14.3 per cent—a rise that would hurt the whole community and especially those on lower incomes. The other major influence is entirely beyond the control of New' Zealand. When the price of oil goes up it not only damages the balance-of-payments position of the country, but costs within the country increase. Another substantial rise in the price of oil would cause the inflation rate to pass 15 per cent No influences of any size which would lower the rate of inflation are on the horizon; one of the more positive responses available would seem to be to grin and bear it. A growth in productivity could help to lower the inflation rate. It is too early yet to judge how much the earless days scheme will affect productivity. Perhaps the effect will be minor and the amount saved in import bills for oil will be significant. The trouble is that, if the country appears to be slowing down, the urge to raise productivity may lessen. At the moment, however, there is a slight rise in production and retail sales are running ahead of their level of a year ago. 'Although the gap in overseas transactions has been narrowing for several years, the revenue from exports looks

as if it will be slightly exceeded by spending overseas and, once again, the deficit will have to be met by borrowing. The effect of New Zealand’s having a higher inflation rate than many of its trading partners will be to reduce the value of the New Zealand dollar. The flexible exchange rate introduced’ in the last Budget will soon have to reflect any differences in inflation rates. Further devaluation will sustain exports and improve exporters’ incomes; imports will be dearer for everyone. Over all, the effect on the New Zealand consumer will be unpleasant. The effects of imported inflation will have been allowed for in the O.E.C.D. estimates, for the O.E.C.D. keeps itself well informed on international trends in growth, trade, and inflation. New Zealand has had near enough to zero economic growth for the last two years. If the 1979-1980 year turns out the same way the full effects of inflation are going to be felt. If farmers produce more wool and meat, if manufacturers produce more goods, if those engaged in the servicing industries have a more efficient output, some of the inflation will be abated. The temptation is to believe that all can be cured if only everyone works harder; the use of technology and the willingness to adapt to new technology are important too. Readiness to accept change will have a great impact on the country’s growth. Changes in industry demand investment and shifts in investment; and necessary changes will be obstructed or delayed by excessive wage claims or the undue conservatism of unions. For its part, the Government must continue to restrain public expenditure, though it will do so at considerable expense to its popularity. However, any increases in taxation will restrict investment programmes just as much as will increases in other costs. To this end, higher productivity in Government services is just as important as getting more output and more efficient output from farms and private industry.