PQ 1. Inflation—Government Measures to Address
[Sitting date: 24 July 2014. Volume:700;Page:1. Text is
subject to correction.]
1. Hon PHIL HEATLEY (National—Whangarei) to the Minister of Finance : What measures is the Government taking to help control inflation for New Zealand families?
Hon BILL ENGLISH (Minister of Finance): Among a number of sensible economic measures, the Government has maintained practical and predictable monetary policy in the hands of an independent Reserve Bank. This assists to control the cost of living. Among the policies, the Government is working hard to get back to surplus this year, and to ensure existing spending is focused on programmes that make a real difference to New Zealanders rather than going on a large spend-up, which puts pressure on interest rates and the cost of living. We are supporting businesses to invest and create jobs, and incomes are rising faster than inflation. Consumer prices rose by 1.6 percent in the year to 30 June and food prices were up by 1.2 percent for the year. That compares with overall inflation of 5.1 percent in 2008, when annual food prices jumped by 11 percent rather than by 1.2 percent.
Hon Phil Heatley : How did consumer price inflation for the last June year compare with market expectations and what were the main components of that annual result?
Hon BILL ENGLISH : The quarterly Consumers Price Index increase of 0.3 percent and the annual rise of 1.6 percent were slightly below market expectations. Annual inflation remains in the lower half of the Reserve Bank’s 1 to 3 percent target zone, which is good news for households and businesses. In the June year the strong exchange rate was reflected in lower prices for audiovisual and computing equipment, lower vehicle prices, and a fall in prices for telecommunications services. These falls were offset by slightly higher prices for housing and household utility prices and increased costs for cigarettes and tobacco after an excise duty increase in January.
Hon David Parker : Is he aware that Consumers Price Index inflation does not incorporate interest rate increases, therefore hiding the significant increases to mortgage rates that have occurred over the past year because of his Government’s failure in Auckland housing policy?
Hon BILL ENGLISH : I do not think any interest rates increases have been hidden. People have been getting notifications in the mail for the last 3 or 4 months about their interest rates going up. I would point out to the member that at 3.5 percent the official cash rate is less than half what it was when his Government left office in 2008, when it reached a record 8.25 percent. The interest rate that he is claiming is too high is 3.5 percent; when he was in charge it reached 8.25 percent.
Hon Phil Heatley : What recent reports has he received on likely future trends in the cost of living?
Hon BILL ENGLISH : In its review of the official cash rate this morning the Reserve Bank said that overall “Inflation r emains moderate, but strong growth in output has been absorbing spare capacity.” Its independent decision to raise the official cash rate to 3.5 percent is expected to keep future average inflation near the 2 percent target and ensure that the economic expansion can be sustained. I am sure the House understands just how significant the Reserve Bank’s statements are. With the official cash rate at 3.5 percent the Reserve Bank is indicating that we can sustain growth around 3 percent. That is in sharp contrast to the interest rate structure under the previous Labour Government, when the official cash rate never fell below 4.75 percent in 9 years. When Labour left office it was at 8.25 percent, inflation was above 5 percent, floating mortgage interest rates were almost 11 percent, and house prices had doubled in the previous 7 years. It looks like we will be able to avoid all of those mistakes this time round.
Rt Hon Winston Peters : If the Minister compares interest rates with the USA, China, Japan, the UK, and nearly all of Europe, is it not a fact that, comparatively, we are paying the highest interest rates in 50 years?
Hon BILL ENGLISH : New Zealand is paying the lowest interest rates it has had in 50 years, or just slightly above. Of course, if the member wants long-term recession and enormous Government debt like they have in the UK and Europe, then of course we would have zero to 1 percent interest rates. But, actually, this Government chooses more jobs, more investment, and more growth, and that is why we have higher interest rates than they do.
Hon Phil Heatley : What reports has he seen on alternative approaches to monetary policy and economic management, and what impact would they have on the cost of living for New Zealand families?
Hon BILL ENGLISH : We have just seen one alternative approach from the leader of New Zealand First, who is suggesting that we have large deficits, enormous Government debt, and low growth rates, and that, therefore, we would have low interest rates.
Rt Hon Winston Peters : I raise a point of order, Mr Speaker. That is out of order. He cannot say that and speak for another party, particularly one that knows what it is doing.
Mr SPEAKER : The Rt Hon Winston Peters raises a reasonable point. It is inappropriate for any member to ask a question that is simply a means of attacking another party. Does the Minister want to add further to the answer?
Hon BILL ENGLISH : Of course I do.
Mr SPEAKER : Well, the Minister can, but it had better not be an attack on another political party.
Hon BILL ENGLISH : I have seen reports from parties that are so worried about the cost of living that they are going to put a $25 carbon tax on, which, of course, will raise the cost of living, not lower it.