The Crest of the Commonwealth of Australia Treasury Portfolio Ministers
Picture of Peter Costello

Peter Costello

Treasurer

11 March 1996 - 3 December 2007

Transcript of 27/10/99

Transcript No. 99/78

Transcript
of
THE HON PETER COSTELLO MP
Treasurer

Doorstop Interview
4 Treasury Pl, Melbourne

Wednesday, 27 October 1999
12.00 pm

SUBJECT: September Quarter CPI Figures

TREASURER:

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.