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RBA No to Defaltion fears

Quarterly stories on Deflation have spiralled to 350 according to The Economist's count of the Wall Street Journal and Financial Times. This compares to an average through the 1990's of 100. The Deputy Governor of the Reserve Bank has spoken eloquently on the subject in his speech to Australian Business Economists on 4 December 2002. Here is an extract from his conclusion on Australia:

"Australia would be one of the last economies in the world where deflation would be expected. In the remote possibility that it did occur here, we could expect that there would still be plenty of investment possibilities. So unless the corporate and financial sectors' financial structures had become seriously flawed ? something of which there is no sign at present ? there would be ample scope for monetary policy stimulus to be effective. In the (even more unlikely) event that that were not enough, a government sector with an exceptionally strong balance sheet would be well-positioned to use fiscal policy to assist the economy, in this extreme situation."

Let's hope he's right!

Posted Wednesday, 4 December 2002

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