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War Economy

Rapid Currency Depreciation

Rapid Currency Depreciation

In the recovery years, 1946 to 1955, retail prices increased at an average rate of nearly 5½ per cent a year. The purchasing power of the currency was depreciating dangerously fast.2 Savings in the Post Office Savings Bank and similar institutions were losing much more in purchasing power each year than the depositor was receiving in interest, a situation likely to undermine confidence in these forms of saving, and in the currency generally.

From 1955, prices became more stable. In this year some of the post-war shortages of consumer durables were overcome,3 but, equally important from the point of view of currency stability, it marked the end of nearly a decade of rapid expansion in bank advances.

Subsidy removals had a considerable effect on short-term price fluctuations, but, over the period 1946 to 1955, cannot be blamed for much of the price rise.4 Subsidy payments totalled under page 537 £9 million in 1945–46 and were £12.6 million in 1954–55, though they had been as high as £14.7 million in the interim. For sixteen years up to 1962–63, subsidy payments were usually in the range from £10 million to £15 million a year.

Chart 80 shows price changes up to 1964.

chart of retail prices

Chart 80
-Ratio Scale-

2 The average rate for New Zealand, since the early 1900s, has been about 2½ per cent.

3 The demand for washing machines, for example, was satisfied in this year.

4 But see the fuller discussion of subsidies at pp. 305–8.