Inflation falls sharply, shares steady, Germany and Japan launch stimulus packages – Economy roundup

The war on inflation appears to be over.


New Australian Bureau of Statistics figures reveal inflation dropped by the largest amount in over a decade during the December quarter, with the rate falling 0.3%.


The annual rate of inflation is now running at 3.7%, down from 5% in the September quarter 2008.


During the December quarter the index recorded an 18.2% reduction for automotive fuel prices, 2.4% for motor vehicles, 1.9% for loan facilities and 4.7% for pharmaceuticals.


Inflation is falling fast as the economy slows. The Westpac-Melbourne Institute index of economic activity, which predicts economic activity three-to-nine months into the future, shrank by 2.2% in November after just a 0.2% reduction in October.


Westpac chief economist Bill Evans says the contraction brings the index to 253.5 points in November from 256 in October.


“In the past this has been a useful signal of the likelihood of Australia experiencing a recession,” Evans says.

“This sharp fall in the growth rate of the leading index coupled with the further deterioration in the global growth environment … intensifies the risks that the Australian economy will contract through 2009.”

Shares steady


The Australian sharemarket opened lower today, but quickly gained ground after positive leads from Wall Street overnight.


The benchmark S&P/ASX200 index was up 20.3 points or 0.59% to 3,464.3 at 12.10 AEDT.


Commonwealth Bank shares led the charge with a 5.1% rise to $25.99, while NAB gained 2.9% to $18.71. Westpac rose 2.7% to $15.22 while BHP Billiton gained 1.6% to $29.80.


Overseas, Wall Street recorded gains for a third consecutive day. The Dow Jones Industrial Average rose 58.7 points or 0.72% to 8,174.73.


Oil dropped 9% to $US42 a barrel.


Stimulus packages


Also in the US, a congressional committee has approved part of President Barack Obama’s $US825 billion stimulus package. The Senate Appropriations Committee has approved a $US365.5 portion of the package, but further tax-cuts are still being negotiated.


While the bill is gaining momentum, several Senate Republicans have opposed the package for not putting enough money into the hands of consumers. The legislation has now been sent to the Senate for debate.


Another stimulus package in Germany worth just under $100 billion has been approved, with funding for infrastructure projects such as roads, railways and schools. Tax cuts are also included in an effort to encourage consumer spending.


The package also includes benefits worth $4,994 for those willing to get rid of an old car and buy a new one, in order to help the struggling car industry.


“This economic package is our response to the international financial crisis,” Chancellor Angela Merkel said at a news conference. “We have to make sure the measures are implemented as quickly as possible.”

Japan has also approved a similar package worth $75 billion which focuses on payouts to individuals. Prime Minister Tara Aso succeeded passing the bill, but opposition parties are attempting to block other Government spending plans.


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