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Rates not a major driver of inflation


Rates not a major driver of inflation
For immediate release on 4 December 2008

“I am concerned at the extent to which rates have been singled out as the cause of inflation, President of Local Government New Zealand Lawrence Yule said today, after comments made by Dr Bollard, Governor of the Reserve Bank.

“Local government rates and charges account for around 2.7 percent of the basket of goods that make up the Consumer Price Index (CPI). In practical terms this means it takes a four percent increase in rates to move the CPI 0.1 percent, an eight percent increase to move the CPI 0.2 percent.

“Statistics from the Government show council rates and payments increased 4.7 percent in the September 2008 quarter. Councils usually determine their rates for the year once and these normally come into effect from 1 July. There have been no further increases in rates charged since 1 July. This year rates have resulted in a 0.13 percent increase in the CPI.

“Over the same period, other items went up much more, for example, transport (up 11.3 percent), food (up 9.5 percent), and housing and household utilities (up 4.7 percent).

“Council rates seem to be an easy target for the Reserve Bank. Dr Bollard needs to understand that most councils are very aware of the political consequences of rates increases and only do so after thorough consideration of what is needed by their communities. Even if they do raise rates, as we have shown, it only has a small national impact on the CPI.”

“We met recently with Dr Bollard and attempted to explain this to him. Clearly we need to meet again.” said Mr Yule.


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