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Thursday, 14 May 1970

Mr BURY (WENTWORTH, NEW SOUTH WALES) (Treasurer) - First of all 1 would point out that the statement to which the honourable member referred was in relation to the rate of increase in retail prices, which for the March quarter was running at the annual rate of about 4%. I would not regard a movement in prices per se as necessarily a proper measure of inflation but I did point out that this was the largest increase in any March quarter since 1953 and was a reflection of events which had happened somewhat earlier. Even at this stage there is undoubtedly a train of causation which may well bring about even higher prices notwithstanding anything else that may happen. As to the general effect of the economic measures about which the honourable member also asked me, I would say first of all that the seasonal pattern in Australia is that of tight liquidity in the last quarter of the year - April, May and June - the period we are about half way through at the moment. It so happens that for the past 2 years this normal seasonal movement has been overlaid by a large inflow of money from overseas. This year this inflow is running at a much lower level and is not affecting the situation in the same way. Therefore it is to be expected that there will be a very illiquid situation in the last quarter of the financial year. After that period there is normally a bit of a flat period, in July and August, and then the process tends to reverse itself.

Most prudent financial controllers of institutions engaged in various kinds of activity which depend upon borrowed funds do allow in their calculations for the fact that normally this is a very tight money season. As for the duration of it, the normal process is that it eases after the turn.

Referring now to economic measures, these are to be distinguished in 2 parts. One measure taken recently was the increase in interest rates by the banking system. Also, of course, there has been an increase in interest rates arising from the excessive demand for money. The various demands for money from different sectors have built up a pressure which reinforces one sector after another. We have reached a point where Australia docs not turn out sufficient goods and services to match the increasing money supply. It is essential to bring supply and demand factors more into balance. While this position lasts we have a potential inflationary situation continually building up.

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