Nick Minchin (SA, Liberal Party, Minister for Finance and Administration) Share this | Hansard source

The Liberal Party website is a matter for the Liberal Party, but I will pass on your concerns to the Liberal Party. The Liberal and National government is very proud of its record on inflation. Inflation under this government has averaged 2.6 per cent compared to the 5.2 per cent average under the former Labor government.

Senator Sherry cites the statement by Glenn Stevens, the new Governor of the Reserve Bank. In addressing the question of why the Reserve Bank felt it necessary to raise the cash rate by 25 basis points to 6.25 per cent, the governor referred to the fact that the world economy has grown strongly in 2006 and is generally expected to grow at an above average pace in 2007, and that strong conditions are prevailing in most of the developed and developing world and the global expansion that we are experiencing and enjoying the benefit of has contributed to high levels of commodity prices, which continue to add to incomes and spending in this country. He also noted that domestic demand has been expanding at a relatively strong pace against a background of limited spare capacity, that labour market conditions have remained tight and businesses are reporting high levels of capacity usage. The combination of all these forces cited by the Reserve Bank has contributed to an increase in inflation.

In the September quarter, the underlying inflation rate was around three per cent, up from 2½ per cent at the end of last year, and is likely to remain around that rate in the near term—in other words, it is an expectation that inflation has gone to three per cent, a rate which the former Labor government could not even dream of because they averaged 5.2 per cent. So to suggest that somehow we have lost control of inflation is utterly fatuous and not even Senator Sherry could possibly believe that.

What is important is that we have given the Reserve Bank an independent charter to ensure that inflation does not get out of control as it did previously. It does that by ensuring that interest rate policy is used to keep inflation in the band of two to three per cent over the cycle. It has increased the cash rate to 6.25 per cent to ensure that end. To ensure that we maintain the prosperity that this country enjoys and that inflation does not get out of control that monetary policy is used judicially to achieve that end, which the Reserve Bank has done.