Financiers still have 'inflation mentality’

Press, 22 June 1989, Page 28

Financiers still have 'inflation mentality’

Wellington reporter The latest measures of producers’ inflation showed the banking and finance sector was still operating with a cost-plus, inflationary mentality, the president of the Manufacturers’ Federation, Mr Barry Brill, said yesterday. Input costs for the finance sector had risen 4 per cent in the year to June. But their output prices had risen by 3.7 per cent more than this, at a rate of 7.7 per cent for the June year. By contrast, manufacturers’ output prices — their sale price for finished goods to wholesalers — had risen less than the cost of their inputs — the raw materials for production. Inputs in the June year for manufacturing rose 8.1 per cent, and outputs rose 4.9 per cent. “The banks and insurance companies are still passing costs on and taking a percentage mark-up of them, said Mr Brill. “They then require manu-

facturers and others to demonstrate where they can cut costs before they grant loans or reduce premiums. “Pressures to improve efficiency in banking and insurance companies have to be brought to bear, like those weighing on the tradeable goods sector,” said Mr Brill. But the executive director of the Banker's Association, Mr Simon Carlaw, was dismissive of the manufacturers’ claims, saying banking was operating in an internationally competitive environment, whereas New Zealand manufacturing was highly protected. Any increases in bank costs were coming off a lower base of cost increases than manufacturers had passed on in the past. Several banks had set up new branches and had been hiring new highly trained staff in recent times and this would be adding to some banks’ cost structures. “Unlike the manufacturers, it’s very difficult to measure the economies of scale and

cost increase in the financial sector,” he said. “Gearing up for new banking business will not produce economies of scale like when you are gearing up a production line from 100 to 1000 units,” he said. The producers price index figures for the three months to June showed that both input and output prices for manufacturing had increased faster than for the finance sector. Other sectors showing greater rises in output than input costs in the June quarter, other than banking were agriculture (inputs up 1.7 per cent, outputs up 3.4 per cent), and wholesale and retail trade (up 1.6 per cent, and 3.7 per cent respectively). Basic metals, primary food, communications, and electricity all showed a squeezing of profit margins over the quarter through lower output cost rises than inputs. But over the year as a whole, electricity output prices at 9.3 per cent outstripped input price rises by 2.2 per cent.