Inflation decline to 10.5 p.c. forecast

Press, 20 December 1986, Page 2

Inflation decline to 10.5 p.c. forecast

By

PETER O’HARA,

NZPA staff correspondent London

A decline in New Zealand’s inflation rate to 10.5 per cent in the next financial year is predicted in a forecast by the Parisbased Organisation for Economic Co-operation and Development. The organisation, whose officials privately acknowledge that New Zealand’s present economic trends are among the most difficult to predict of its 24 members, has occasionally produced figures at variance with the final result.

However, in its “economic outlook” for member countries, the O.E.C.D. says consumer prices will increase 10.5 per cent in New Zealand in the year ending March, 1988. The figure at the end of the current year will be 13.25 per cent, it says — down

nearly 2 per cent on the 1985-86 year. Unemployment is forecast to rise slightly, reaching 5.75 per cent — up 0.5 per cent — by the end of the March, 1988, year. Although wage settlements in the present wage round may be “considerably below” the previous year’s rises of about 17.5 per cent, the report says inflation is expected to increase temporarily “owing to the effective devaluation of the New Zealand dollar and the introduction of GST.”

“Real disposable income may increase in 1986-87, boosted by the previous year’s high wage settlements and the income tax cuts of October 1986.

“Private consumption is nevertheless expected to fall as the savings ratio returns to more normal levels.” The O.E.C.D. said re-

cent indicators were difficult to interpret “since the introduction of GST led to substantial anticipatory purchases.” The outlook added that with a downturn in activity, “high real interest rates and the completion of large investment projects, investment activity is forecast to contract sharply in 1986-87 before stabilising during 1987-88 when the downturn is expected to flatten out. “Assuming no further adjustment in the savings ratio in 1987, private consumption would increase. in line with disposable income, while enhanced competitiveness due to the effective depreciation should promote export growth.” The organisation said employment was forecast to remain “flat over the forecast period, entailing an increase in unemployment.”