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Cullen's Tolerance Of More Inflation A Concern

17 July 2002

Cullen's Tolerance Of More Inflation A Concern -- English

"Michael Cullen is doing neither himself nor New Zealanders any good with ill-informed and politically self-serving comments about inflation and monetary policy," says National Party Leader Bill English.

Mr English says Dr Cullen should spell out exactly what he would have the Reserve Bank do differently to cater for his more 'flexible' attitude towards inflation.

"During the past decade inflation has averaged 2%, which makes a mockery of his claims that the Reserve Bank has been obsessively focussed on the 1.5% mid-range point of its target inflation band.

"Also, during this period, inflation has often breached the top end of the target band and no-one has 'panicked'.

"Right now, we have inflation nudging the top end of the band and most economists would argue that monetary conditions are still relatively loose."

Mr English says Dr Cullen needs to explain exactly what he means by more 'flexibility' and just how being more tolerant of higher inflation will help New Zealand's economic prospects.

"At the end of the day, more inflation means lower growth, higher interest rates and a further decline in New Zealanders' living standards - meaning world-class health and education systems would be further beyond our reach.

"An extra 1% per cent annual inflation means health would require an extra $80 million a year and education another $75 million just to stand still.

"How will this be beneficial to New Zealand's long term economic prospects?" Mr English asks.


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