Inflation heading higher, shares down sharply: Economy roundup

Inflation has risen for a second consecutive month, mainly due to higher petrol prices, according to the TD Securities-Melbourne Institute inflation gauge.


The gauge rose by 0.7% in February, contributing to an annual increase of 3.1%. It is the first time in four months that the gauge has gone beyond the Reserve Bank of Australia’s target range of between 2% to 3%.

While petrol prices remain approximately 11% lower than a year ago, TD Securities global strategist Stephen Koukoulas says the 16% rise last month was “very disconcerting”.

“The RBA board, which meets tomorrow, will be a little uncomfortable with these inflation results and will no doubt consider the range of other less-bad indicators in recent weeks,” he says.

“As a result, it may pause in the interest rate cutting cycle as it waits for the current fiscal and monetary stimulus to work through the economy.”

But Treasurer Wayne Swan is expecting a cut, given the poor state of the global economy.

“We now have a situation where seven out of our top 10 trading partners are in recession. This will have a dramatic impact on growth in Australia in the December quarter,” Swan said today.

GDP data for the fourth quarter is due on Wednesday, and is widely anticipated to show approximately 0.1% growth.


Shares lower

The Australian sharemarket has opened lower today after a weak lead from Wall Street late last week, which fell on fears the US recession is worse than expected.

The benchmark S&P/ASX200 index was down 84.1 points or 2.51% to 3260.4 at 11.28 AESDT. The Australian dollar has fallen to a two-week-low of US63 cents.

Commonwealth Bank shares have fallen 3.7% to $28.71, while NAB lost 2.3% to $17.46. AMP fell 2.9% to $4.69. Pacific Brands dropped a massive 15.6% to $0.19.

Meanwhile, the Federal Government says it will take its time in making a decision on China’s $US19.5 billion investment in Rio Tinto. The Chinese top aluminium manufacturer plans to use the bid to double its share in the company to 18%.

But the deal must be first approved by the Australian foreign investment board, and they have signalled they will take their time.

“This is a very significant decision,” Treasurer Swan said. “The Government will take its time to evaluate it in great depth and detail. It’s very important that we get this right in the national interest.”

Meanwhile, Fairfax Media has managed to raise $500 million in a capital raising, saying the group received “very strong” support from existing institutional shareholders.

“We are pleased with the strong support from our existing institutional shareholders. We are also pleased that shares have only been allocated to our existing shareholders, thus ensuring the value has been retained within our shareholder base. We thank them for their support,” chairman Ronald Walker said in a statement.

“This successful equity raising considerably enhances the financial position of the company in these difficult economic times and reaffirms our shareholders faith in our great company.”


Notify of
Inline Feedbacks
View all comments