Inflation expectations down, Shares slide: Economy Roundup

Inflation expectations have dropped due to concerns over debt problems in Europe and their possible impact on the Australian economy, according to a new survey.

The Melbourne Institute Survey of Consumer Inflationary Expectations has revealed the median expected rate fell to 3.6% in May, down from 4.1% in April.

“The fall in inflation expectations probably reflects respondents’ concerns that the unfolding of events in Europe might affect the domestic economy,” Melbourne Institute research fellow Michael Chua said in a statement.

“Indeed, as shown in the latest Westpac-Melbourne Institute Consumer Sentiment Survey, the component indices reflecting economic conditions in the next 12 months and next five years point to more respondents becoming less optimistic about future economic conditions.”

The survey found respondents were concerned over debt problems in Greece, along with other financial problems in the Eurozone. The result comes after the Westpac-Melbourne Institute survey of consumer confidence found sentiment has dropped 7% due to interest rate rises.

The number of consumers expecting inflation to be within the RBA’s 2-3% target rose to 16.2% in May, from 15.9% in April, and is below the 12-month average of 16.9%.

Meanwhile, the Australian dollar has fallen even further this morning to US84c as concerns grow over Germany’s plan to ban naked short selling.

The move has delivered a shock to global markets, but the local market has managed to stay flat this morning. The benchmark S&P/ASX200 index was down 13.7 points or 0.31% to 4373.4 at 12.15 AEST.

ANZ shares lost 0.6% to $21.13, as Commonwealth Bank shares lost 1.5% to $50.60. Westpac fell 2.2% to $22.21 as NAB rose 0.1% to $23.83.

Reuters has reported ANZ is the key player to purchase a controlling stake in the Indonesian PT Bank Panin, worth about $US1.4 billion.

ANZ is currently expanding into Asia, and sources have said it is the top candidate as it already owns 38.5% through a separate entity.

“It’s not appropriate for us to comment on rumours regarding Panin Bank and the holdings of other shareholders,” ANZ spokesman Paul Edwards said.

“ANZ has a long-term strategic partnership with Panin. We are investing in our ANZ branded business in Indonesia, which gives us a platform for organic growth.”

KPMG to challenge ASIC

Meanwhile, KPMG will attempt to challenge the Australian Securities and Investment Commission in order to recoup $200 million for investors involved in the Westpoint Group collapse.

The firm has launched a High Court challenge, and in a statement has said the firm is looking to prove that section 50 of the ASIC Act is unconstitutional.

Section 50 empowers ASIC to start legal proceedings in the name of the company, which KPMG says affects the acquisition of property and contradictions section 51 of the Constitution.

Healthscope has said it is considering a takeover offer worth $5.75 per share from a private equity consortium.

The company’s board has reportedly recommended no action be taken on the new bid, which is 4.5% higher than the original offer received by the company last week. Healthscope said in a statement that the board will consider the option.

“The board believes the company is well placed to lift market share in pathology as a result of industry deregulation,” the company said in a statement.

“Longer term growth is expected from the construction of new, large and very efficient hospitals.”

In Canberra, finance minister Lindsay Tanner has attacked shadow treasurer Joe Hockey’s reply to the Federal Budget, saying the proposed $46 billion in savings aren’t actually achievable.

Tanner has squared his reply on the plan to scrap the National Broadband Network, saying the $26 billion used for the project are actually an investment and do not affect the budget bottom line.

“In his table, Mr Robb acknowledges that $22 billion of the savings – the cancellation of the NBN and the sale of Medibank – comes from one-off capital savings,” Tanner said this morning.

“What he doesn’t acknowledge is that these savings have no direct impact on the budget bottom line.”

Garnaut challenges miners on threats

Also in politics, economist Ross Garnaut has told ABC Radio the proposed super profits tax will not drive investment offshore, despite warnings from mining companies.

“It doesn’t distort any investment production decisions or trade decisions,” Garnaut, who chairs Lahir Gold, told the network. “The broad approach I think is sound, (but) the detail needs a lot of analysis.”

“We have got to get out of that shop steward mentality and back to analysis.”

The comments come as a number of mining industry veterans, including Fortescue Metals chief executive Andrew Forrest, have said they will scrap or postpone projects due to the mining tax.

But foreign minister Stephen Smith has said the threats are empty, and once again said the tax will not be imposed until July 2012.

“So when projects are said not to be going ahead there are always a range of sophisticated reasons… there will be plenty of assertions in the course of a robust debate,” he also told ABC Radio.

Treasurer Wayne Swan has also told the Australian Financial Review the mining companies, particularly BHP Billiton, should begin negotiating with the Government instead of making threats.

Overseas, European shares have closed lower due to the controversy in Germany surrounding the ban of naked short selling. The FTSEurofirst 300 index closed 2.9% lower to 996.73 points.

In the United States, the Obama administration has suffered a setback as Senate Democrats failed to gather enough votes to end debate on the financial regulation reform bill. Sixty votes are needed, and only 57 were counted in the Democrats’ favour.

The bill is a priority for Obama, who wants to reform financial markets in order to avoid another crisis. The delay was received well by investors on Wall Street, but fears over Germany sent the Dow Jones Industrial Average down 66.58 points or 0.63% to 10,444.37.