Inflation rate expected to worsen

Press, 4 December 1981, Page 19

Inflation rate expected to worsen

PA Wellington Real incomes are expected to level off in the coming year while inflation rates will probably worsen, says the Reserve' Bank in i'ts latest bulletin. It says the twin problems of persistent external deficit and an unfavourable rate of inflation are likely to constrain the level of domestic activity and inhibit an early resolution of the serious unemployment problem New Zealand faces. This emphasises the need to adopt an integrated medium-term approach to resolving New Zealand's economic problems. The growth in the economy should continue but should level off later in the year, says the bulletin. This assumes that the expansionary monetary and fiscal conditions now prevailing will moderate to some extent during the course of the year. The levelling off in real incomes will in part be due to the effect of automatic

stabilising mechanisms, notably fiscal drag which in the absence of offsetting policy measures will tend to constrain the growth of dispos- . able incomes. This suggests that the pre- . sent pick-up in real con- ; sumption spending may not i be sustained. In addition the ; favourable agricultural ex- ■ port conditions over the last ; few seasons cannot be ex- j peeled to continue to contri- ; bute to real economic growth • at present levels, particu- ' larly if the international re- j covery in economic activity ; remains sluggish. “Indeed, the combination i of likely export and import j volume changes and the as- i sumption of relatively flat ■ terms of trade could lead to | a further widening of overseas exchange trans- ! actions current deficit over i the next year or two," the . Reserve Bank says. ; “It would appear that the main factor which should : underpin economic activity next year is likely to be a continued expansion of investment." i