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Government cost increases driving inflation

Media statement Friday, July 15th, 2005

Government cost increases driving inflation; holding interest rates high

Home owners would be benefiting already from lower interest rates on their mortgages except for the high price increases being levied by central and local government, the Employers & Manufacturers Association (Northern) says.

"The inflation that is keeping interest rates up is coming almost entirely from areas of the economy not subject to competition," said Alasdair Thompson, EMA's chief executive.

"Its mostly due to high central and local government cost increases - in the June quarter last year government costs were 7.7 per cent higher than the year before, over double the rate of inflation.

"Every quarter since then they have been running over 50 per cent higher than inflation.

"All up the non tradable part of the economy accounted for 4.4 per cent of inflation while the tradable component for only 0.7 per cent.

"It means our exporters and other producers are paying the price for other sectors where competition is non-existent or ineffective.

"Non tradable goods and services include local authority rates, electricity and gas, communications services, insurance, water and refuse, motor vehicle running, education and child care, restaurants, accommodation and house rentals.

"Tradable goods and services are those imported or produced locally but are in competition with foreign goods and services here or in markets offshore."


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