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Inflation fight sheeted to Government

Thursday, December 9th, 2005

Inflation fight sheeted to Government for leadership

Exporters and others whose income depend on earnings offshore are the front line casualties of our world record interest rates, said Alasdair Thompson, EMA's chief executive.

"But this group, which represents about 40 per cent of the economy, and whose key price signal is the exchange rate, is not generating inflation.

"It's the other 60 per cent of the economy, the domestic market including government, where the capacity constraints are occurring and where the inflation is being driven.

"Monetary policy is punishing exporters first and foremost though the economy is dependent on their success.

"It's totally the reverse order of what should happen, and it sends all the wrong signals about the importance of business and our dependence on it for education, health and welfare.

"To counteract the reverse order of things, our traders at least need central and local Government to demonstrate leadership by controlling their own costs and other inflation boosting policies.

"Monetary policy can't defeat inflation on its own.

"Over the past six years central and local government have actively pushed up prices, for instance through higher energy costs, higher rates, more compliance, tighter employment laws and by employing many more public servants whose skills are needed in the private sector economy.

"All these have driven inflation way above the average otherwise.

"Government wants business to lift productivity, but business wants to see government lead by example, for instance through greater competition in its provision of monopoly services, and by reversing its trend towards ever more regulation.

"The Reserve Bank should be exposing the Government contribution to the inflation problem at every announcement.

"The risk now is all the growth of the past six years could be wiped out over the next 12 months."


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