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Inflation peak temporary inevitability

Media release 17 January 2001

Inflation peak temporary inevitability

"The latest annual CPI increase of 4% was the inevitable result of the dramatic increase in fuel costs and the government's increasing taxes on cigarettes and tobacco," says Alasdair Thompson, Chief Executive, Employers & Manufacturers Association (Northern).

"If these items had remained unchanged, the annual increase would have only been 2.5% despite the dramatic fall in the New Zealand dollar, which also pushed up the cost of all imported goods and services.

"The main contributors to the 4% annual inflation were external to the Reserve Bank or outside its control. If the Bank responded to that, the tradable sector and new Zealand's economy would take an unnecessary hit.

"With consumer spending still sluggish and the New Zealand dollar recovering, economists are predicting inflation will be back below 1.5% by year's end.

"Given that, and the effect of the slowdown in the US, the Reserve Bank of New Zealand ought to ease back interest rates here when it reviews the OCR next Wednesday," said Mr Thompson.

Further comments: Alasdair Thompson Phone: Business 09 367 0911 Home 09 303 3951 Mobile 025 982 024

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