Transcript No.

99/78

Today’s September Consumer Price Index, which showed a rise of 0.9 per cent for

the quarter and 1.7 per cent for the year, shows that inflation in Australia is still very

low by historical standards. To put that in context, in the 1980’s inflation averaged

about 8 per cent. Before our Government came to office it averaged about 5.2 per cent. And

today’s figure, which was in line with market expectation, showed inflation through

the year at 1.7 per cent. The biggest contributor to the rise in inflation was the rise in

petrol prices. World oil prices doubled from February 1999 to September of 1999. They

appear to have peaked and come off a little, but the increase in world oil prices fed

about 0.4 per cent into the Consumer Price Index. And if you abstract that it’s a CPI

through the year of about 1.4 per cent. Now what this says, is we can’t afford to be

complacent on inflation. We always have to keep it under watch. But the news today is that

inflation is still under our target. Our target is 2 to 3 per cent, still under that 1.7

per cent through the year is a very low inflation rate.

JOURNALIST:

What’s the Government done to bring about this result?

TREASURER:

Well the Government has run very strong economic policy. We’ve ensured that there

is competition in product markets, in labour markets. We’ve put the Budget into

surplus. We’ve retired debt. And we’ve ensured that we’ve had a strong

privatisation programme. All of that has led to a growing economy. An economy which has in

the last year been growing above 4 per cent with an inflation rate of 1.7 per cent. Now

that kind of strong growth on that kind of low inflation is something we haven’t seen

in this country since the 1960’s.

JOURNALIST:

So do you need to change anything to keep it under control?

TREASURER:

Oh look, the inflation dragon is always out there, you always keep the inflation dragon

under watch. But we can say it is still subdued. You never kill the inflation dragon, but

it’s subdued at the moment. We like to keep it subdued.

JOURNALIST:

If oil prices go back down do you expect a drop off in the inflation rate?

TREASURER:

Yes. If world oil prices came off and petrol prices fell, that would contribute in a

negative way bringing the CPI down. Now what’s fed into this CPI is a doubling of

world oil prices between February and September. And they’ve actually come off in the

month of October which is not showing up in these figures. If they continued where they

now are, in fact, that would make a negative contribution to the December quarter of CPI.

But what you can say on the basis of today is, inflation through the year of 1.7 per cent.

The increase principally driven by an increase in world oil prices. World oil prices

appear now to have stabilised. Inflation is still below the target we have of 2 to 3 per

cent. And we want to keep inflation low because low inflation protects people who are

living on fixed incomes, and it’s good for business, and it’s good for jobs.

We’ve had some good jobs figures today. The Morgan and Banks survey showing strong

jobs growth still in the economy and that’s good for those people that are looking

for work.

JOURNALIST:

That Morgan and Banks survey also shows a looming labour shortage. Is that a concern,

especially for wages pressure and inflation?

TREASURER:

Well, I don’t know that I’d go so far as to say that we’re yet in a

labour shortage. Unemployment is still too high. Unemployment is still above 7 per cent.

The Morgan and Banks survey shows that job growth is very strong and that’s good for

the people that are looking for work. I don’t see labour shortages looming. But I do

make the point that, strong growth, low inflation, we need to keep wages under control,

that’s what’s contributed to the jobs growth. And people don’t have to go

out and get wage rises to chase prices. Prices moved 1.7 per cent in the last year.

Compare that to the 1980’s, the average was 8.2 per cent. And before our Government

was elected, during the period of Labor, 5.2 per cent per annum average. So this is still

very, very low inflation.

JOURNALIST:

(Inaudible)

TREASURER:

Sorry?

JOURNALIST:

There are predictions of 5 per cent inflation next year. Is that realistic?

TREASURER:

No. We forecast over the period of 1999/2000 that inflation would kick up to around 2

per cent. That’s the underlying inflation rate. As you look through all of the tax

changes that are going to occur next year, the underlying inflation rate will be within

that order. We’re actually predicting inflation a little higher than the results that

we saw today.

JOURNALIST:

Is the Reserve Bank under pressure to put rates up next week?

TREASURER:

Oh look, the Reserve Bank is independent and looks at the economy. It always looks

forward in relation to the economy and no doubt the Reserve would be pleased, as I am,

that inflationary pressures as shown today are still low.

JOURNALIST:

The East Timor Budgets, the fact that the United Nations is sending its own people in

early next year. Would that reduce the amount of expenditure that Australia has to put

into its force?

TREASURER:

Well it might you see, because whilst the Australian forces are there as part of

INTERFET, the Australian Government pays totally for the military commitment. And

we’ve made this entirely clear, that we’re going to ensure those troops are

fully funded for everything they need. As the UN takes over and puts a blue-helmeted force

in, then the UN becomes responsible for the costs. Now we don’t quite know when that

is going to occur, but when it does occur we know that there will be other countries

around the world that will take a bigger part in that force. So it may in fact have that

effect in relation to Budgets, but it’s just too early to say. We’ve been

looking at this now for several months. You can’t say what the costs are going to be

in relation to East Timor until you know how long, how many people are involved, what the

military situation is going to be like? But the military situation, so far, has been

pretty good. And I pay tribute to the Australian forces for the great work that

they’ve done.

JOURNALIST:

Is it likely to be in the order of $500 million?

TREASURER:

I’m not putting any figures on it. Now anyone else? No? Thank you very much, thank

you.