Inflation drops to 3.5 p.c.

Press, 14 April 1984, Page 1

Inflation drops to 3.5 p.c.

By

MICHAEL HANNAH

Parliamentary reporter j An annual inflation rate ' of 3.5 per cent, the lowest in ] 18 years, was recorded in the first three months of ; this year. The latest consumers’ 1 price index was welcomed i by the Prime Minister, Sir ] Robert Muldoon, with a ; warning that some price j increases charged by small 1 businesses and services, especially doctors, were “not 1 acceptable.” 1

Sir Robert also told “The Press” that he still expected the inflation rate at the end of this year to be about 5 per cent. The consumers’ price index rose 0.7 per cent in the March quarter, and this follows increases of 1.0, 0.8 and 0.9 per cent in the three previous quarters. The latest annual increase is the lowest recorded since December, 1966. The biggest direct contributions came from dwelling rentals (other than Housing

Corporation); purchases of previously occupied houses; interest on home mortgages; and new and used cars. The prices on which the index was based were surveyed around February 15. The survey also gives more weight to house prices, after a revision of the weighting pattern in the C.P.I. Sir Robert said the 3.5 per cent rate was “the base from which we’re starting.” It included one month past the freeze, which ended on February 29, but only food prices would have impacted on the C.P.I. figure, as other prices were collected before the end of the freeze. Sir Robert said he was “reasonably happy” about the food price rises “given that they were taken after any immediate impact postfreeze.” However, he was not happy with charges by small businessmen, particularly in services areas. Sir Robert said these had to be looked at again, and the Trade and Industry Department was looking at these charges. Some, such as hairdressers, had reduced their

charges from what they had originally put them up to, he said, but he singled out doctors for further attention. “Doctors are under direct scrutiny and the increases that doctors have made in their fees are simply not acceptable,” Sir Robert said. He believed the freeze had succeeded in lowering people’s expectations of inflation, and referred to the “stated policy” of manufacturers to keep price increases down, and of main retailers and supermarkets to have no price increases in the three months after the freeze. The latest drop in inflation comes a day after a big drop in unemployment was also announced. Asked whether these two trends could be sustained, Sir Robert said: “We won’t get any further decreases in unemployment of this magnitude, and I would expect in the second quarter a higher level of price increases than in the first quarter, because there are some approved price increases post-freeze that will come into that quarter.

“My estimate for the calendar year is still about 5 per cent.” Labour’s spokesman on consumer affairs, Mrs Ann Hercus, said the thaw in prices since February 29 was “just the beginning.” “If the Government chooses inflation as an issue on which to fight the election campaign, they — and the statistics — will be pushing uphill all the way,” she said. Mrs Hercus accused the Government of cynically choosing February 29 as the ending date of the freeze, as it knew the C.P.I. figure would be based on prices chosen two weeks earlier, around February 15. She said there was a “mass of evidence” of the pace of the thaw on prices. There had been a rapid increase in the number of price increase approvals for big companies, from 22 in the first fortnight of the surveillance period, to 43 in the second and 65 in the third. There had been a “flood” of food price rises, many of which were being allowed because “increased costs were not passed on during

the freeze.” Mrs Hercus this was obvious evidence that the freeze had merely suppressed cost rises. She said there had also been a large number of price and fee rises in the service area, a large number of rises for part charges on prescription medicine, rises in daycare costs and hairdressing prices, a 20 per cent increase in music teachers’ fees, and rises in drycleaning prices. Social Credit’s spokesman on finance, Mr Les Hunter, said it would be impossible for the March quarter figure to be repeated while the Government’s other economic and financial policies remained unaltered. “It is a pity that with such relatively good inflation figures, achieved through the straight-jacket of price and wage controls, the opportunity was not taken to remove the underlying causes of inflation,” he said. Mr Hunter predicted that the easing of the price freeze would partially release pent-up pressures, which had been suppressed, but which would now force prices up again.