Tag Archives: Economic Issues

According to a BIS Shrapnel report released today, high interest rates could be here to stay. BIS Shrapnel have also warned that the Reserve Bank will struggle to control inflation over the next decade because of skilled worker shortages and higher food and fuel prices.

New economic data also shows another record trade deficit and further signs of slowing demand, with most economists and investors now tipping that rates will remain on hold for the time being, and possible rate cuts over the next year.

But the BIS Shrapnel report says despite growth slowing initially, inflation will remain above 3% for the next three years, and stay at about 3% for the next decade – meaning the Reserve Bank will be forced to increase interest rates.

The report says cheap Chinese imports and scarcity of goods will keep food and fuel prices high for the next decade. The Australian dollar will fall as commodity prices ease over the next few years, which will be positive for exporters but bad for inflation.

Business investment growth will also wind back, and construction will instead start to pick up, preventing inflation from dwindling.

Read the full article from The Age, Business Day, 8 April, 2008.

The last few posts have discussed Australia’s current economic climate and provided views from various commentators. What’s your view? What do you predict will happen to interest rates, consumer demand and fuel prices?

Contrary to an earlier post made on interest rates, the Reserve Bank is now sending a strong hint that interest rates have probably peaked, and that the next move could be down. This is certainly welcome news to many Australians who have been feeling the recent pressure of successive interest rate rises.

According to the governor of the Reserve Bank, Glen Stevens, ”We have the biggest terms of trade boom in 50 years, at the same time as we have one of the most serious malfunctions in developed country capital markets in a long time.”

Mr. Stevens also said “the demand for credit by households has been weakening over recent months. Measures of confidence have declined. While those measures can provide false signals, our assessment is that a change is occurring, and we are hearing that from businesses that we talk to.”

Read the full article from The Age, Saturday 5 April, 2008.

Check out the Reserve Bank of Australia website for more information on monetary policy.

A four-month inquiry by the Australian Competition and Consumer Commission (ACCC) into rising grocery prices began in Sydney on Tuesday and will travel to all capital cities as well as number of regional areas. The enquiry will examine the factors that influence the pricing of grocery items at the supply, wholesale and retail levels of the industry.

The ACCC will also consider the competitive positions of Woolworths (Safeway) and Coles, which together share 80 per cent of the retail packaged food business, and the effect of their market dominance on small and independent retailers.

According to consumer groups and smaller grocery cahins, Australia’s grocery market duopoly needs urgent reform to lower prices and reduce barriers to entry. What do you think? Read the full story on Yahoo7 News and then answer the following questions:

1. Identify the main stakeholders and their roles in this issue.
2. What is the ‘consumer price index’ and would separate index for food and groceries help consumers?
3. Outline some of the main findings already made by the ACCC enquiry.

Interest rates in Australia are currently at a 12-year high of 7.25 per cent. Today, the Reserve Bank of Australia (RBA) met to consider interest rates and has left them on hold for the imediate future. However, the door remains open for further rate rises depending on inflation figures due out later this month.

The decision by the RBA was widely expected by analysts who said the bank needed more time to see the effects of its three rates rises since November. Consumer price data for the March quarter, due out on April 23, will also influence whether rates rise again next month.

While the economy remains strong, with employment continuing to grow, RBA Governor Glenn Stevens said in a statment that the series of rate increases is providing “tentative evidence that growth in domestic demand is moderating. Business and consumer sentiment have softened in the early part of 2008, and credit demand has slowed somewhat.”

“In the short term, inflation is likely to remain relatively high, and both the CPI and underlying measures will probably rise further in year-ended terms in the March quarter,” Mr Stevens said in the statement. “However, inflation should decline over time, provided demand slows as expected.”

Read the rest of the article from The Age, Business Day, 1 April, 2008.

Some analyist are predicting at least one more rate rises this year before we might begin to see any releif in 2009. What do you think about the current economic climate in Australia? Do you think interest rates will continue to rise, or will we begin to see an easing of rates in the near future?

In a survey released today by Accounting software firm MYOB, the majority of Australia’s small business owners say they fear that recession is on the way as rising interest rates and global market instability take their toll on confidence. Already this year, we have seen significant volatility in world financial markets along with an upward trend in Australian interest rates. Together, these things are having a big impact on small businesses.

Interestingly, few small business owners are making any plans to survive an economic downturn despite worrying about the prospect of a recession. In fact, 83% of respondents to the MYOB survey consider planning and preparing a business to ensure survival through an economic recession to be important, but only 44% actually have a business plan. Obviously they didn’t study Business Mangement at school!

Read the full article in The Age, Business Day, 31 March, 2008 and consider how economic stresses such as those mentioned in the article are affecting the work-life balance of small business owners.