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Inflation fight futile without rising productivity

Media statement Thursday, June 5th, 2008

Inflation fight futile without rising productivity

The huge rise in government spending in recent years, and the added
regulations imposed on business has positioned New Zealand poorly to
cope with the rapid rise of food and fuel prices, the Employers &
Manufacturers Association (Northern).

"The Reserve Bank is obliged to keep interest rates high to combat
inflation though it depresses our economy," said Alasdair Thompson,

"But the inflation its fighting is brought about by the costs imposed by
central and local government as well as the second round effects from

"It seems obvious to anyone that prices will inevitably go up when
international demand exceeds supply - for New Zealand to fight this is

"It is also damaging though necessary to fight rising government
expenditure with high interest rates; the Reserve Bank cannot be held
responsible for wasteful government spending.

"Meanwhile the high NZ dollar induced by high interest rates is a major
factor driving our businesses offshore and ironically that will get
inflation down by putting people out of work.

"Once people are forced to stop all discretionary spending, and our
retailers and manufacturing suppliers are near bankruptcy, inflation
will come down along with our standard of living.

"Ultimately the government will be held accountable for this, not the
Reserve Bank."


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