N.Z. inflation rate high—U.K. banker

Press, 7 October 1987, Page 40

N.Z. inflation rate high—U.K. banker

NZPA Wellington Other O.E.C.D. countries will be able to hold on to their low inflation and New Zealand has a way to go to catch up, according to the chairman of Lloyds Bank, Sir Jeremy Morse. Rising commodity prices and higher long term interest rates indicated the O.E.C.D. average of about 5 per cent annually, reflecting the anti-inflationary policies pursued since the early 1980 s, could move up, he said in Wellington on Monday. But Sir Jeremy did not expect that would happen. "I think inflationary expectations have receeded and people are sufficiently certain about the future that probably ... we are in a fairly stable situation.” That inflation in West Germany, Switzerland and

Japan was virtually nil supported a general containment through the 0.E.C.D., he added.

Sir Jeremy said New Zealand could stick to its free market policies in the drive to bring inflation down to the O.E.C.D. average and emerge with stronger industries despite the pressure of high interest and exchange rates. "It ,is a very difficult question to judge how far you are doing some permanent damage to sectors of industry and how far you are giving them a really Healthy shake out which makes them more efficient in the future,” he added. “I think you can only judge that at the end of the day.” Sir Jeremy said producers in Britain had faced similiar or greater pressures under deregulated policies to fight inflation.

“British industry would say, on the whole, ‘we came out of that healthier than we went into it’.” Furthermore, it appeared New Zealand agriculture and manufacturing was responding in the same way British industries had, he added. "The greater part of them are getting down to it and organising themselves to do better in a tougher world.” Sir Jeremy conceeded this country faced the added difficulty of trade barriers in its large primary product markets but said the need for liberalisation had now been acknowledged worldwide. He took an optimistic view of the track of inflation in New Zealand, favouring the forecasts that now put the annual rate near 6 per cent by late 1988. However, inflation expectations remained

“fragile”, largely because of uncertainty about the impact of a slowdown and other trends in the world economy. “You’ve still got quite a way to go.” Sir Jeremy predicted the swing through the Western world towards market economies would last 20 to 25 years, and be followed by a move back to Government intervention. “Other people say its happening forever, and that swaps and all these other things have been invented and we will never go back to the traditional things.” Rejecting that, Sir Jeremy said all economics involved cycles and the swing to deregulation followed a similiar period of interventionism. The present cycle would be long enough to require all countries to adopt policies recognising markets, he added.