Economy

Inflation plummets, rate set to fall again, manufacturing hits 16-year low: Economy roundup

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It’s official – the inflation war is being won. Today’s TD Securities-Melbourne Institute monthly survey shows inflation has fallen 0.6% in November following a 0.2% fall in October – the biggest fall since the survey began in 2002.

It’s official – the inflation war is being won. Today’s TD Securities-Melbourne Institute monthly survey shows inflation has fallen 0.6% in November following a 0.2% fall in October – the biggest fall since the survey began in 2002.

The gauge shows annual inflation has fallen to 3%, down from 3.9% in October, the lowest point since September 2007.

“There has been a quite staggering turnaround in price pressures in recent months,” TD Securities senior economist Joshua Williamson says. “The substantial turnaround in inflation fundamentally changes the economic and policy outlook. The previous inflation problem has been turned on its head.”

Another cut on the way

The inflation gauge paves the way for an interest rate cut at tomorrow’s Reserve Bank meeting, with an AAP survey of economists revealing all 18 of its respondents expecting a cut.

Eleven of the 18 respondents say the rate will be cut by 75 basis points to 4.5%, taking official rates to their lowest point since June 2002. The remaining seven say it will be cut by a whopping 100 basis points, which would drop the rate to just 4.25%.

Manufacturing

A drop in the official interest rate should help stimulate economic growth, which according to the latest manufacturing activity figures is sorely needed.

The Australian Industry Group/PricewaterhouseCoopers Performance of Manufacturing Index sank a seasonally adjusted 7.7 points to just 32.7 in November – the lowest reading since 1992.

Loss of consumer confidence, falling household wealth and a weakened property market has led the poor performance, the two firms say. The survey’s New Orders Index, an indicator of demand, fell a record 14.4 points to 24.5 in November.

But despite the slowing economy, businesses continue to keep their heads above water. According to new Bureau of Statistics data, company gross operating profits rose 5.2% in the September quarter, while wages and salaries also grew a seasonally adjusted 1.4%.

Sharemarket woes

Following a positive week of results, the sharemarket has fallen 2% in early trade despite good leads from Wall Street last week.

The S&P/ASX200 was down 60.8 points or 1.62% to 3681.7 at 12.10 AEDT. The dollar has also lost some ground, slipping back to just $US65 cents.

BHP shares have dropped 3.5% to $29.92, while ANZ fell 2.7% to $14.40. NAB shares have also fallen 2.8% to $19.45.

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