Double whammy of rates and fuel hurting business - Sydney Morning Herald 20-6-08Â
HIGH interest rates and rising fuel costs are hurting businesses, a new survey has shown.
There are pockets of resilience in the economy, however, with jobs growth of about 2 per cent a year and strong selling prices, the Australian Chamber of Commerce and Industry-Westpac industrial trends survey for the June quarter found.
Its composite index dropped to 53.9 from 56 in the March quarter.
"This survey reinforces the view that the economy is continuing to slow," said Greg Evans ACCI director, industry policy and economics.
"We believe that the impact of the four official [interest rate] rises, combined with rises by commercial banks, provides the context in which we don't believe the Reserve Bank should look to any upward adjustment on interest rates in the near future."
Business expectations showed a further decline, with the index dropping to minus 16 in the June quarter from minus 12 in the previous quarter, to its lowest level since March 2003.
A Westpac senior economist, Anthony Thompson, said a jobs growth rate of 2 per cent would put minimal upward pressure on the unemployment rate. Rising selling prices would not be sustainable as demand slowed more significantly, especially among consumers.
Business investment plans were also slowing, with credit conditions a likely factor. "We think the investment boom of the past five years is behind us and we will be seeing a slower period of investment growth," Mr Thompson said.
Mr Evans said rising oil prices were a particular concern to small and medium enterprises, as were high interest rates. "The overriding feedback we are getting is that they are starting to be hurt by rising fuel prices."
He also said the consumer price index next month might might show signs that underlying inflation was slowing.
Annual underlying inflation struck a fresh 16-year high of 4.25 per cent in the March quarter, well above the Reserve Bank's 2 to 3 per cent target band.
The central bank is forecasting underlying inflation staying at 4.25 per cent in the June quarter, gradually easing to below 3 per cent by the end of 2010.
"Our view is that the next CPI release [due on July 23] will hopefully demonstrate some slowing in the quarterly pace of underlying inflation," Mr Thompson said.
The significant increase in interest rates would keep weighing on domestic demand and help return inflation to the target band in late 2010, he said.
The Reserve Bank last raised its official cash rate in March, but has warned against inflation fuelling high pay awards.
Mr Thompson said the degree of wage restraint in the official numbers was a pleasant surprise, considering strong pressure on inflationary expectations in the past year.
"The behaviour of the wage numbers … and pressures on costs for businesses are going to remain significant - it's just less likely that those costs will be passed on [to consumers]."
