H— 35.

Reference to the retail-price index numbers quoted above shows that retail prices have lagged considerably behind both export prices and wholesale prices during recent years, the 1930 annual average index number for retail prices (1573) being 197 points higher than the wholesale-price index and 429 points higher than the export-price index. Between January and December, 1930, wholesale prices fell 4-4 per cent, export prices fell 27-3 per cent., and retail prices (between November, 1929, and November, 1930) 3-4 per cent. " Lag " in Retail Prices. The "lag "in retail prices is not a phenomenon peculiar to the Dominion. The year 1930 was a year of falling prices all over the world, but retail prices have not yet adjusted themselves to the change in wholesale prices. In this connection, the following comparison of the fall in prices in Britain, the Dominions, and the United States is of interest:—

Percentage Decrease in Prices, January to October, 1930.

Note.—This table illustrates the disparity between the fall in prices realized in the wholesale markets and in the prices paid by householders for commodities used in the average household. Decreases in wholesale prices have been considerably greater than in retail prices in each of the countries examined, the exception being in the case of New Zealand. Wholesale prices dropped gradually in the Dominion throughout the first few months of the year, but the downward movement was checked by the effect of the tariff increases in July, which reflected themselves in the index numbers from the month of August onwards. From the above analysis it is apparent that, while export prices for our primary produce are very sensitive to the state of the overseas markets, wholesale and retail prices " lag " considerably in in responding to such influences. Export prices of dairy-produce and wool are already showing signs of recovery, but it is clear that a very considerable advance in the prices of primary produce would bo necessary to bring export prices back to a level corresponding to that of the index number of farm expenditure ; or, conversely, a very considerable reduction in expenses of production would be necessary in order to bring the farm-expenditure index back to anything approaching the present level of export prices. Until some readjustment of prices received to prices paid is made, an unsatisfactory state of industry, with Consequent acute unemployment, will continue. The divergence between the farm-expenditure index and the export-price index is in part accounted for by the lag of the wholesale-price level in adjusting itself to the falling export prices. The consequence of this lag is that the prices paid for materials continue on a level relatively high as compared with those received for commodities produced by the farmer. This accounts only in part for the difference ; for interest, wages, rates and taxes, freights, insurance, and other items making up the total budget of primary producers' expenditure have not receded to the same extent. While it does not come within the scope of this report to make suggestions as to the methods to be followed in adjusting costs of production to the low level of export values, it is quite evident that unless some such adjustment takes place in the near future a rising tide of unemployment will drain the resources of the Board unless a very marked improvement in export prices takes place. International Comparison of Movements in Wholesale Prices. The problem of the receding wholesale-price level is causing grave concern the world, over, and it is difficult to predict with any certainty the future trend of events in this economic sphere. The importance of the price factor in the economic affairs of New Zealand has already been stressed, and it is informative at this stage to consider the movement since 1914 in wholesale prices in the United Kingdom and other overseas countries. New Zealand indexes are also inserted for purposes of comparison : —

28

Country. Wholesale Prices. ,^* a " Price , s (All Groups). Per Cent. Per Cent. United Kingdom .... 15 6 South Africa .. . . .. 7| 2£ Australia .. .. . . 14 3|* Canada .... 15 5 United States .. .. 12 J 5 J New Zealand .. . . . . 3| 2§f * First to third quarters. t February to November.