TREASURER:
Today’s Consumer Price Index without question is good news for Australia. It shows that in the March quarter the Consumer Price Index increased by 0.7 per cent and through the year by 2.4 per cent. A yearly increase of 2.4 per cent shows that inflation remains moderate in Australia, notwithstanding the fact that we are now at unemployment levels which are as low as they have been in 30 years. And more importantly, the outcome of 2.4 per cent is just about bang in the middle of the target that we have of 2 to 3 per cent.
In relation to the Consumer Price Index, there are a lot of measures that moved down, for example clothing and footwear and motor vehicles, both no doubt influenced by the fact that tariffs were reduced on 1 January of this year. There were some areas that moved up, in particular in pharmaceutical benefits, that is because the March quarter is traditionally a high pharmaceutical benefit quarter because the safety net has run out at the end of the calendar year. In relation to education, we also saw some price increases no doubt influenced by the fact that HECS fees rose as a result of the new freedoms for universities in relation to fees.
When you look through these figures however you don’t see any general inflationary pressures. We had a report yesterday in relation to producer prices which also showed the final stage of producer prices were very flat. And so the picture that we get out of today’s figures is notwithstanding a strong economy, notwithstanding unemployment falling to lows of 30 years, price pressures remain contained in the Australian economy showing a growth economy with subdued inflation.
JOURNALIST:
Do you expect Treasurer that inflation will now stay within the Reserve Bank’s target band making any further interest rate changes unnecessary?
TREASURER:
I don’t think you could see in these figures any general outbreak of inflation, nor are we forecasting any over the next 12 months, in the next financial year, 2005-2006. So, I see a good outlook in relation to keeping inflation moderate and of course we will be confirming our forecast when the Budget comes down in May.
JOURNALIST:
(inaudible)?
TREASURER:
Well, in Australia as you know we have set our monetary policy according to an agreement which has been entered into between the Governor of the Reserve Bank and me, that is to target an inflation rate of between 2 and 3 per cent over the course of the cycle. You have got an outcome today which is 2.4 per cent, obviously within that band. When you are looking at monetary policy you are obviously trying to look through the year and maybe look out 12 months, maybe look out 18 months, but you would have to say in relation to these figures that the outlook there is for continuing moderate inflation. So that is a pretty good outcome in a growth economy which is now at 30 year lows for unemployment.
JOURNALIST:
The Treasury Chief Ken Henry yesterday apparently was warning the Reserve Bank against raising interest rates saying that could lead to a recession, do you agree with him?
TREASURER:
I don’t think it is right to say he was warning anybody. I think what he was saying yesterday was he was giving an assessment of the stage of the economic cycle and I think what he said yesterday was very much in line with my own thinking that there has been this tendency in Australia to (inaudible) with extreme scenarios of one day the economy is racing away uncontrollably, the next day we are facing a crash. Sorry to disappoint economic journalists but the truth of the matter is that we are somewhere in between. We have had a strong growth economy and although it is probably not growing as fast as it was a year or two ago, there is still a bit of oomph in that economy and that is a good thing.
JOURNALIST:
Are petrol prices the key risk going forward? This figure includes a slight fall in petrol prices but after the quarter they have obviously started going up, is that the key risk going forward?
TREASURER:
Look I think in this quarter, that is the June quarter, petrol prices will have risen again, we all know that from the pump, and whilst you have got petrol prices detracting in the March quarter you would expect petrol prices to add in the June quarter. But we know that the petrol price is just a function of the world oil price, we know that world oil prices are going to go up and are going to move around. When you are looking at inflation, you are generally trying to look through those factors, you are generally trying to look through and to find out what the underlying position is, so I wouldn’t place too much store on the fact that petrol detracted this quarter anymore than I would place store on the fact that it is likely to add in the next quarter. What we are trying to do is we are trying to look through those commodities which vary according to world cycle, we are looking for what is happening in the underlying economy. And I think as you look at what is happening in the underlying economy, you would see a moderate inflation outcome.
JOURNALIST:
Mr Costello, just on another matter. I don’t know whether you heard the comments, there were comments aired on radio this morning from Sheik Faiz Mohamad who is a cleric in Sydney. He has suggested that the way Australian women dress makes them, and I quote ‘eligible for rape.’ I wondered whether you had a response to a comment like that.
TREASURER:
Well I have seen comments reported in newspapers that somehow the dress code of Australian women invites sexual attack or unwanted sexual attention. And if such comments are made I consider them totally inappropriate, untrue and unhelpful. Australian women are free to dress in the western style and nothing gives an excuse for them to be molested in anyway. This is Australia, women are free to dress as they choose and they deserve to be safe on our streets and in our parks and they are entitled to respect. And if anybody does suggest that somehow being molested is acceptable or excusable because of the way in which women dress they are wrong.
JOURNALIST:
Coming back to Dr Henry Treasurer, he also apparently said that short term changes in fiscal policy don’t really have any effect on monetary policy. Does that mean that there is room for further tax cuts in your Budget?
TREASURER:
I think the important thing in relation to fiscal policy is to get some idea of dimension. If you were running budget deficits, yes of course that would put pressure on interest rates, but we are not in Australia, we are running budget surpluses - unlike the Americans and the British and the Europeans. So, Australia starts off so far in front of Britain and Europe and America and Japan that we are almost in a different category. If we were running a budget position like they are, then yes, the dimension of that would be such as to have a significant influence. The second point I would make in relation to fiscal policy is the important thing is how it varies from year to year as to whether it has been tightened or whether it has been loosened. A lot of people overlook that fact. You get a lot of silly commentary coming out of people like the Labor Party that overlook that fact, but that is the key ingredient here.
JOURNALIST:
Treasurer, you are saying that wages pressure remains contained so you may no longer see the possibility of wage claims putting upward pressure on interest rates, you no longer see that?
TREASURER:
I have always said that if wage claims get out of whack with productivity that would be a big pressure on the Australian economy.
I have always said that if people think, not based on productivity, they could have a five or a six per cent per annum wage claim, that would be a risk. To date we haven’t seen that. We have seen some people making ambit claims, we have seen a few instances of where it has happened. But my warning is, do not take that into the general economy. That would be a problem for the general economy and I would say to people, you can still have a real wage increase, on 2 per cent inflation. You can still have a real wage increase of 3 and 4 per cent and once more that real wage increase of 3 and 4 per cent backed up by productivity will be consistent with the economy continuing to grow but anyone who thinks out there that they can take advantage and got for 6 or 7 or more, and if that became widespread in the Australian community that would be a problem. Yes.
JOURNALIST:
Some analysts have interpreted Ken Henry’s statements as he was referring to interest rates potentially going up next week. To those people would you say or could you say whether or not you think it is appropriate that he should be giving hints like that when he actually sits on that Board?
TREASURER:
Well Ken Henry is Treasury Secretary, he makes a very strong contribution in that capacity. He is obviously one of the senior economic officers in the country and he is as entitled to have his view on the economy as the Reserve Bank Governor or any journalist or any banker or the people who seem to be absolute experts on everything these days, bank economists. So, absolutely I would defend his right to make a contribution.
JOURNALIST:
And how are you feeling gearing up to your, is it tenth Treasurer?
TREASURER:
Yes it is.
JOURNALIST:
How is it going?
TREASURER:
Well we are working hard.
JOURNALIST:
How is the mood going.
TREASURER:
We are working very, very hard and in little under two weeks time all will be revealed. Thank you very much for your time.