Parity and Bust: Dollar for Dollar Is Not a Good Deal
Listener: 19 August, 1995.
Keywords: Macroeconomics & Money;
The proposal for “parity parties” when the New Zealand dollar equals the Australian dollar in market value is typical of the bizarre economic thinking by some in the financial sector. The last time parity was attained was in November 1967. Since then consumer prices have risen 12.8 times (i.e. 1180 percent) in New Zealand, while they have risen 8.1 times in Australia. While the consumer price index is not a perfect measure of inflation, the gap between our price levels remains substantial. An OECD study in 1990 found the New Zealand dollar could buy the same as 86 Australia cents. Allowing for the differential inflation rates since the figure is probably about 88 cents today.