Farmers welcome the status quo

Federated Farmers is commending the Reserve Bank for keeping the Official Cash Rate (OCR) unchanged at 2.5 percent.

"Inflation is running well within the 1-3 percent target band and although inflation over the coming months will be boosted by ACC levy hikes, a probable increase in GST, the looming Emissions Trading Scheme (ETS) and excise tax increases, these hits should also dampen consumer spending," says Philip York, Federated Farmers economics and commerce spokesperson.

“These policy-induced price increases come as a result of the real inflation problem, inflation in the non-tradable sector, the part of the economy not exposed to international competition.

“Non-tradable inflation is now sitting at around 2 percent. However, over the past decade non-tradable inflation has increased by 4.1 percent per year. Compare this to tradable sector inflation, which has increased at 1.7 percent per annum.

"This is why getting Government spending under control is so important and why we need to stop the creeping cost-plus mentality returning to the domestic economy.

"We want next month’s budget to not hinder the Reserve Bank in implementing monetary policy. We hope that it will give heart to the exporting, tradable sector and enable it to drive sustained economic recovery.

"Half of the country’s dairy herds are in drought zones at the moment, so although they’ll be getting a higher payout these will probably be offset by less production. This drought, like previous droughts, will have wider economic impacts. This is another important reason to be cautious about increasing the OCR", Mr York concluded.