Inflation puts new cloud on Australian economy

March 4, 1982

Rising inflation and increasing talk of devaluation are creating a new atmosphere of concern regarding the Australian economy.

Australia now has a higher rate of inflation than at any time in the past five years. Analysts predict one result will be a worsening of an already bleak labor relations picture.

Figures from the Bureau of Statistics, a government agency in Canberra, show inflation of 11.3 percent in the year ending Dec. 31, 1981 - the worst since 1976, when inflation was 14.4 percent.

For the final quarter of 1981, price increases for health care, electricity, transportation, and household goods are cited as mostly responsible for boosting inflation above the 9.2 percent of calendar 1980.

Health care rose 29.2 percent over 1980, mainly as a result of cutbacks in government subsidies, in accordance with the federal government policy that patients should meet the cost of as much of their medical treatment as possible. Australians, as a result, have been spending more for health insurance coverage - and facing larger bills for items not covered by their insurance.

Industrial and labor leaders warn that the latest figures may prompt greater industrial unrest in a nation where strikes already have a major disruptive effect on industry and, particularly, exports.

A spokesman for the Confederation of Australian Industry, George Polites, maintains that inflation may not have peaked, suggesting it will hit 15 percent unless wage demands are moderated. He blames big pay raise settlements in the past six months for pushing up costs to consumers.

The Australian Council of Trade Unions says, in a statement, that the inflation rate will affect wage negotiations now in progress between unions and employers. Labor analysts contend that demands for more pay, backed by strikes, will intensify as a result of higher inflation. Predictions of a wages-and-prices spiral appears to have been accurate, some observers say.

Former Foreign Minister Andrew Peacock, now a government back-bencher, is calling for tax cuts to head off pay demands, but the government has indicated this option is unlikely to be taken. Mr. Peacock, who is frequently critical of official policies, argues that employees understandably want to maintain their real after-tax income. ''The trade union movement has made it clear there is little chance of wage restraint unless tax cuts are introduced,'' he declares.

Treasurer John Howard says he expects Australia's inflation rate to drop back to single figures, but not until 1983.

Mr. Howard says the inflation figures challenge ''all in the community to work harder to contain inflationary pressures and to ensure that the effects of this rise are temporary.''

But the Labor Party opposition leader, Bill Hayden, has been highly critical of official policies. ''Most of the latest increase in the cost of living is caused by health insurance charges and sales tax - in other words, deliberate policies of the government. The government can't blame wage increases or the unions for this record.''

Meanwhile, calls are increasing in Australia for devaluation of the country's dollar, which has slipped in value against the United States dollar in the past year and is now worth approximately $1.12 (in US dollars).

Keith Campbell, chairman of a recent wide-ranging official inquiry into the Australian financial system, notes that if Australia had a floating dollar ''it would ease down.''

Sir James McNeill, chairman of Australia's largest company, Broken Hill Proprietary Company Ltd., which has wide-ranging mining and manufacturing interests, says that ''the (Australian) dollar is high, not because we have got a competitive cost structure but because we have these very high inflows. We need these inflows, but it would certainly help the manufacturing industry enormously if the dollar were not as high as it presently is.''

A comment by Deputy Prime Minister Doug Anthony, leader of the National Country Party, the junior partner of the Liberals in the federal government, has been widely interpreted as supporting devaluation.

Mr. Anthony said a number of options are available to Australia to improve its export performance. ''The first is to further improve our export competitiveness.'' Canberra sources suggested later that it was devaluation to which Anthony was referring, without saying so.

Government sources, however, have so far not given any indication that a devaluation is imminent.