Inflation falling fast, shares edge higher, another British bailout: Economy roundup

The Reserve Bank’s war on inflation may have been won – inflation has fallen to a three-and-a-half year low, according to the TD Securities-Melbourne Institute monthly inflation gauge.

The Reserve Bank’s war on inflation may have been won – inflation has fallen to a three-and-a-half year low, according to the TD Securities-Melbourne Institute monthly inflation gauge.

The gauge fell 0.2% in December, following a 0.6% drop in November and a 0.2% drop the month before. It is the first time in its history that three monthly drops have occurred in succession.

Annual inflation has now slowed to just 2.2% from 3% in November – the lowest point since May 2005.

“The momentum of prices suggests that deflation risks rather than concern about inflation could be more pronounced in the first half of 2009,” TD Securities senior economist Joshua Williamson says.

“The results certainly validate the easing cycle from the Reserve Bank to date, and the mix of recessed economic conditions and sharply falling inflation suggests more interest rate reductions are inevitable.”

But if a new Access Economics report is to be believed, inflation will fall even further, along with petrol prices, the value of the Australian dollar and interest rates.

In its Business Outlook for December 2008, the group says interest rates will be cut to just 2.5% during 2009 while the dollar will fall to US56 cents.

But despite the gloomy outlook, Federal Treasurer Wayne Swan says he cannot comment on whether Australia will slip into a recession as Access Economics suggests.

“I mean every day will bring a new set of private sector forecasts and I don’t intend to… respond to them on a daily basis,” Swan says.

“But I guess what this report does do is point to the impact of a global recession, and what it will mean for world growth.”

Shares edge higher

The Australian sharemarket has opened higher today, following good news from the major banks and miners. The benchmark S&P/ASX200 was up 28 points or 0.79% to 3578.9 at 11.55 AEDST.

The dollar also gained ground to US67 cents.

ANZ shares jumped 0.8% to $14.41, while Wesfarmers jumped 2.3% to $16.60. Commonwealth Bank shares dropped 0.4% to $27.25 on news the bank will split its corporate and business divisions into separate entities.

BHP Billiton also gained 1.6% to $30.37, despite reports that the group will close the $2.2 billion Ravensthorpe nickel mine in Western Australia. The paper reports the company may make an announcement in the next few days in a response to falling nickel prices worldwide.

Rio Tinto is also set to cut 600 jobs, and possibly another 200 in the US, as the company continues to introduce cost-saving initiatives and work towards its target of 14,000 job cuts.

But for some good news, web services firm Ansearch has posted 68% revenue growth in the December quarter from the previous quarter. The group also achieved its second highest revenue month ever in December, while the company also announced it returned to profitability.

Another British bailout

Overseas, Britain will now guarantee debt worth billions of dollars in a second bailout, engineered to boost lending and drag the country out of a recession. The Brown Government will also introduce a host of initiatives set to encourage new lending for businesses and homes.

In the US, preparations are underway for president-elect Barack Obama’s inauguration, set to take place early Wednesday morning Australian time. But the inauguration plans have brought a halt to Obama’s stimulus package plans.

But Wednesday’s celebrations are tipped to boost optimists on the sharemarket this week, in anticipation of the president-elect’s stimulus package worth over $A1 trillion.