Price stability reaffirmed

Press, 18 March 1989, Page 31

Price stability reaffirmed

PA Wellington The Government and the Reserve Bank remain committed to price stability, the bank’s governor, Dr Don Brash, says. Monetary policy was being implemented consistently to achieve this, Dr Brash added in an address to the Society of Accountants in Auckland. Various commentators had recently cast doubt on whether the announced intention of the Government to pursue price stability was to be taken seriously, he said. “I can reaffirm that the Government and the bank remain committed to price stability.” Price and wage setters needed to adjust their expectations and their behavior to this, if the costs of pursuing that goal were to be minimised. Dr Brash said if expectations were not consistent with firm monetary policy, interest rates falls

could be delayed and investment reduced, while wage settlements could be higher than was sustainable, leading to worsening unemployment. Reserve Bank surveys last month showed expectations were that inflation would level out or even rise slightly. The surveys had indicated annual inflation would be up to 4.8 per cent in December, 1989, and 4.9 per cent in December, 1990, against 4.7 per cent last December. Dr Brash predicted the March and June quarter rises in the consumers price index were likely to stay up at about 1.2 per cent, mainly because of the exchange rate depreciation that occurred last August. “These rises are larger than those experienced in June and September last year but are temproary and should not be built into inflation expectations.”