Inflation rises by lower-than-expected 0.1% in March, IMF warns on toxic bank debt: Economy roundup

Australia’s inflation problem seems to be disappearing, after the latest consumer price index data showed headline inflation rose by a lower-than-expected 0.1% in the first quarter, reaching an annual growth rate of 2.5%.

Most of the significant price increases were found in pharmaceuticals, rent, secondary education fees, vegetables and electricity. Price falls were seen in deposit and loan facilities, petrol and travel and accommodation prices.

The Australian index of skilled job vacancies has fallen a seasonally adjusted 4.4% in April from March, and is now 61.5% lower than a year ago, the Department of Employment says.  

The index has fallen 8.9% in trend terms to 37.1, down 61% from a year ago. Vacancies for all three groups dropped, with professionals down 7.2%, trades down 10.4% and associate professionals 8%.

The department has said that 15 of the index’s 18 groups have experienced declines, with medical science and technical officers experiencing the largest decline of 25.1%.

The metal trades, marketing and advertising professionals and information and communications technology groups all experienced declines.

Shares flat

Meanwhile, the Australian sharemarket has opened higher today following positive leads from Wall Street overnight.

The benchmark S&P/ASX200 index was up 2.9 points or 0.08% to 3680.3 at 12.25 AEST. The dollar also rose to US71c from US69c yesterday.

Commonwealth Bank shares have gained 1% to $36.24, while AMP gained 1.5% to $5.28. Woolworths shares fell 0.7% to $26.58, as Westpac gained 0.8% to $19.90.

Overseas, Wall Street has recorded gains after Treasury Secretary Timothy Geithner indicated the country’s major banks are well capitalised. The Dow Jones Industrial Average rose 127.83 points or 1.63% to 7969.56.

Bank debt fears

But the International Monetary Fund has sung a different tune, announcing that “toxic assets” congesting the banking system could reach as much as $5.73 trillion, double the amount predicted in July.

A new report warns that taxpayer burdens could be larger if governments do not help shore up the financial system.

“In this [report], estimates for writedowns have been extended to include other mature market-originated assets and, while the information underpinning these scenarios is more uncertain, such estimates suggest writedowns could reach a total of around $US4 trillion,” the IMF said.

Mining giant BHP Billiton says it expects market conditions to remain uncertain and is reviewing all of its operations after iron ore output dropped 1% on the third quarter, and copper production at 14%.

The company also said that it predicts a 30% drop in annual output from the company’s Escondida mine, the world’s largest copper-producing operation. But BHP says it is in a good position to deliver future growth with low operational debts.

“We are also well placed to take advantage of opportunities in the market, but with our usual disciplined approach,” BHP Billiton said in a statement to the ASX.

“Against a backdrop of weak demand, BHP Billiton achieved sound operational results,” the miner said in its statement.

“In the medium term, we expect that market conditions will remain uncertain,” it said. “All our operations will remain under review. We will continue to take appropriate actions in any business that is cash negative and set to remain so, or where there is lack of demand.”

Telstra will now upgrade the Commonwealth Bank’s telecommunications network in a deal worth up to $1 billion. The 10-year contract will manage upgrades at CBA branches, contact centres, non-branch ATMs and the Eftpos network.