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ATT: National Media Event / Story on Monday 5 March 2001

Regions must be included in CPI price measurement

The House Economics Committee has called for the Australian Bureau of Statistics to include a sample of regional households in its measure of price increases, the Consumer Price Index (CPI).

In evidence at its last six-monthly appearance before the House Economics Committee (Wagga Wagga, December 2000), the Reserve Bank confirmed that the sample used by the ABS was based purely on metropolitan households, with non-metropolitan households left out.

Describing the omission of regional households as a 'glaring deficiency', in a report to Parliament released today the House Economics Committee has asked for the situation to be rectified.

The Chair of the House Economics Committee, Mr David Hawker, said: "During the hearing, questions were asked about the sample used by the Australian Bureau of Statistics for the compilation of the CPI. It was revealed that it is based purely on metropolitan households. The Committee regarded this as a significant deficiency, and is recommending the ABS investigate methods for including regional households to make the sample more representative of the whole Australian community."

The Report released today is the Committee's interim report on the Reserve Bank of Australia annual report 1999-00 and the Bank's Statement on monetary policy November 2000.

Mr Hawker said at the hearing the Reserve Bank reported that Australia had "avoided the boom-bust cycle in economic policy, and hence [has] an excellent outlook for the coming year". However, the Bank stressed that this should not lead to complacency and it outlined some potential risk areas for the economy.

Those included factors such as the world economy, the contraction in housing construction, and business confidence. The significance of the Bank's cautionary remarks has been revealed by subsequent events, with the US Fed's decision to cut interest rates by 1% in January this year. On the 7 February 2001 the Reserve Bank of Australia also cut interest rates by 0.5% to 5.75% reflecting these changing economic circumstances.

This week's National Account figures will shine further light on the Bank's forecasts.

Other important matters addressed by the Committee in today's report are:

• the Bank's continuing modest underestimates of economic growth;
• the need for better explanations for drops in confidence among small businesses - a matter which the Committee has asked the Bank to examine in more detail;
• warnings by the Governor in the lead-up to the federal election;
• the Bank's expectations of continuing low levels of inflation;
• the Bank's continuing assumption that the GST will cause a once-off price lift and will not feed through to inflation;
• the reasons for the changes in the exchange rate and the circumstances in which the Bank is prepared to intervene;
• the Committee's surprise at the apparent tone and breach of confidentiality by a former Board member, and the ongoing monitoring of the transparency of the RBA's decisions;
• the results of the RBA's and ACCC's interchange fees study and their plans to work with financial institutions to reduce charges with the use of credit and debit cards; and
• the Bank's changing stance on monetary policy.

The Reserve Bank Governor will appear again before the Committee on Friday 11 May, in Melbourne.

Ends // 5 March 2001

A copy of Mr Hawker's tabling speech is attached.

To arrange comment:
David Hawker, MP (Chairman), Parliament House 02 6277 4100

Further information:
Beverley Forbes (Secretary) 02 6277 4587
Email: EFPA.Reps@aph.gov.au
Geoff Dodd (House Committees' Media Adviser) 02 6277 2063

For a copy of the Committee's report see:

• internet: http://www.aph.gov.au/house/committee/efpa/rba9899/interimrep.htm
• or contact the Committee Secretariat.

Committee Membership 39th Parliament

Chairman: Mr David Hawker MP
Deputy Chair: Ms A Burke MP
Members:
Mr Anthony Albanese MP
Ms Teresa Gambaro MP
Mrs Kay Hull MP
Mr Mark Latham MP
Ms Tanya Plibersek MP
Mr Christopher Pyne MP
Hon Alex Somlyay MP
Dr Andrew Southcott MP

TABLING SPEECH: MONDAY 5 MARCH 2001: DAVID HAWKER MP, CHAIRMAN

REVIEW OF THE RESERVE BANK OF AUSTRALIA ANNUAL REPORT 1999-00: INTERIM REPORT: THE WAGGA WAGGA HEARING

Mr Speaker,

This unanimous report of the House Economics Committee which I present to you today reviews the performance of the Reserve Bank in its management of monetary policy from May to December 2000.

It is based on the Committee's public hearing with the Bank, historically held in Wagga Wagga on December 1 last year.

Mr Speaker, the staging of this hearing was a significant occasion in the history of both the Committee and the RBA. It brought the Bank and the committee to the people of Regional Australia, showing that both parties are committed to the needs and interests of those living outside Australia's metropolitan bases.

Two people instrumental in allowing this historical meeting to take place were the Member for Farrer, the Hon Tim Fischer, and the member for Riverina, Mrs Kay Hull, who is also a member of the Economics Committee. On behalf of the Econmics Committee, I thank both colleagues for making it possible.

The Reserve Bank has told the Committee Australia has "avoided the boom bust cycle in economic policy, and hence has an excellent outlook for the coming year".

However, the Bank also stressed this should not lead to complacency, spelling out to the committee several potential risk area for the nation's economy. Factors such as the world economy; the contraction in housing construction and business confidence.

These matters are considered in detail as part of the report we table today.

The significance of this cautionary stance by the Bank has now been revealed. In particular, the US Fed's decision to cut interest rates by one per cent in January this year, followed by the RBA's interest rate cut of 0.5 per cent to 5.75 per cent on February 7. Both moves reflect the changing economic circumstances the country faces and this week's National Account Figures will shine further light on the Bank's forecasts.

Concern was also raised regarding a fall in business confidence following the highs of 1999.

With the small business sector in mind, the Committee asked the Reserve Bank to look into the value of existing surveys of business confidence and investigate why there was a recent drop in confidence among small business.

Other issues highlighted by the report include:

• the Bank's continued modest underestimates of economic growth;
• it's expectations of continued low inflation levels;
• the Bank's continued assumption the GST will cause only a once-off price life and will not filter through to inflation;
• exchange rate movements and when the bank is prepared to intervene; and
• warnings from the Governor in the lead up to the Federal Election.

In its report, the committee also highlights its concern regarding the sample used by the Australian Bureau of Statistics in compiling the CPI.

The CPI measures price changes in the spending patterns of all metropolitan private households, but does not specifically measure changes in regional households.

Accordingly, the committee has recommended the ABS work to find ways of including regional households, thus making the CPI a better representation of the wider Australian community.

All are aware the Economic Committee's hearings with the Reserve Bank attract interest from the Parliament, the people, the financial sector and the financial media.

While the hearings have been an excellent avenue of transparency and accountability for the Bank, the Committee continues to strive to find ways to improve this even further.

In our report we note the committee's surprise at the apparent tone and breach of confidentiality by a former Board member.

The committee intends to continue following-up the workings of the Board.

Finally, the report also outlines the results of the RBA and ACCC's interchange fees study - interchange fees being the charge banks pay to each other for servicing credit and debit cards. It also details the RBA and ACCC's plans to work with financial institutions in reducing charges relating to the use of credit and debit cards.

The committee will keep its eye on many of these issues at its next hearing with the Governor, which will be held in Melbourne on May 11 this year, coinciding with Centenary of Federation celebrations.

I thank the Governor Ian Macfarlane and his staff for their cooperation and assistance. I also thank all members of the Committee, Bev Forbes, Kevin Bodel and Belynda Zolotto, and Dave Richardson (from the Parliamentary Library) for their contributions to this inquiry and report.

I commend the report to the House.

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