Inflation not low enough -Douglas

Press, 15 April 1988, Page 1

Inflation not low enough -Douglas

By

BRENDON BURNS,

political reporter

II i ! r P I p I ■ The March quarter inflation result of 1.8 per cent, making an annual inflation rate of 9 per cent, was welcomed, but with a warning, yesterday bjy the Minister of Finance, Mr Douglas.

He immediately cautioned against any belief that quarterly figures near this level were acceptable. The March quarter’s result, released by the Statistics Department yesterday, is slightly higher than most market predictions of 1 per cent to 1.6 per cent.. Housing costs contributed half the 1.8 per cent increase, and food was responsible for a further quarter. The December quarter rise was 2.1 per cent. Last September it was 1.6 per cent. Mr Douglas welcomed the March quarter figure. He had cautioned last week against expecting too optimistic a result. He predicted inflation would continue to drop. “We will see further gains later in the; year' as falling interest rates, weaker house prices and the benefits of increased competition in the, domestic market feed through.”

But to achieve sustainable lower inflation there needed to be a responsible wage round, and

sensible; local body rates and price-setting by other ‘protected sectors, p P P

Further Government! restraint on spending and a consistently tight monetary policy were also required. Mr Douglas said that while economic forecasters saw inflation in the 5 Ito 6 per cent range j as achieveable by riext year, there seemed a “psychological barrier” against further progress. “There is a real danger that if people think 5 or 6 per cent is good enough, the momentum would be lost.” )■• I j That I would be a disaster, he said, because inflation in other Western countries was half this level, and falling. j There had to be realism about what still needed to i be done about inflation, Mr Douglas said. Inflationary , expectations were back where they were; in 1986. The Opposition' spokeswoman on finance, Miss Ruthi Richardson, said the! ;March figure showed New -Zealand to be painfully inching! its way towards a lower inflation rate. I

But noting the annual figure in March of 9 !per cent was only 0.6 per cent less than the 9.6 per cent result I last December, Miss Richardson) said progress was disappointingly poor. | With the Continuing strength of the! New Zealand dollar minimising imported inflation, the culprits were (Within New Zealand. These were: cont nuing high levels of Government expenditure and a protected and inflexible) labour market, said Miss Richardson I The Opposition spokesman on consumer! i affairs, |Mr Venn Young (Wa'itotara), said a 9 per cent inflation rate Could be regarded as an achievement only if the rest qf‘ the economy was growing. | Underlining the so-called acheivemerits of the (Government was the prospect of I a further 50,000 unemployed) this year, more business and farming failures, and little hope of improving the balance of payments, Mr Young said;, , Money 'market reaction, I page 18