Interest rate and fuel price concerns continue to increase

Inflationary pressure persists and interest rate and petrol price concerns continue to increase according to figures from the latest Dun & Bradstreet (D&B) Business Expectations survey.

Sixty two per cent of firms anticipate that their selling prices will be higher in the coming quarter than the corresponding quarter in 2007, indicating that inflationary pressure is continuing to impact businesses. Just three per cent of executives expect their prices to be lower.

Executive concerns regarding interest rates have increased significantly since the previous survey, up thirteen per cent. Thirty nine per cent of executives now rank interest rates as the most important influence on operations in the coming quarter. Retail executives continue to demonstrate the highest level of concern, with forty five per cent ranking interest rates as the most significant influence on operations.

Fuel price concerns have also increased reaching their highest level in six months. Thirty one per cent of executives now rank the cost of fuel as the most important influence on operations.

Meanwhile recent movements in petrol prices have had a negative impact on seventy eight per cent of businesses, a rise of 15 points since December.

According to Christine Christian, Dun & Bradstreet’s CEO, evidence of inflationary pressure and the increase in interest rate and fuel price concerns is to be expected.

“The Reserve Bank’s most recent increase in the official cash rate has pushed interest rates to their highest level in more than a decade and the major banks are moving quickly to pass this cost to businesses. The sharp increase in executive concerns regarding interest rates is a reflection of this activity,” said Ms Christian.

“Fuel price concerns are also valid. The cost of fuel continues to be high and is expected to remain this way for some time.

“Inflationary pressure, interest rates and fuel prices are expected to persist throughout 2008. This means executives need to ensure they are monitoring and managing all aspects of the business that can be controlled.”

The tightening credit market continues to be a concern for executives. Despite a decrease of three per cent since the previous survey, executive concerns remain high. Currently sixty per cent of executives expect credit market conditions to have a detrimental impact on operations – this is up on the fifty seven per cent that recorded concern in October and November.

The outlook for growth in profits and sales has declined again from high December quarter expectations. Thirty three per cent of executives expect an increase in profits and thirty six per cent expect an increase in sales. Despite the decline in expectations since the December quarter, sales growth expectations are up twelve points on those for the June quarter of 2007.

At thirty two, the net retailers’ sales expectations index is especially strong, being eighteen points above the all firms index of fourteen.

Expectations for capital investment have strengthened with the overall net index now at four per cent. Durables manufacturers are showing quite strong growth in capital investment with an index of eleven per cent.

The employment indicator remains in positive territory after one quarter in the negative. Eleven per cent of executives now expect to have more staff in the quarter ahead than they did a year ago, while nine per cent expect to decrease staff numbers.

According to Dr Duncan Ironmonger, Dun & Bradstreet’s economic consultant, the Australian economy should continue to do well in 2008.

“The Australian economy should continue to benefit from stronger commodity prices and growth in major Asian economies. As well, business executives are expecting better growth in sales in first half in 2008 than the first half of 2007,” said Dr Ironmonger.

“Despite these positives, the rising cost of funds is a major problem for businesses and the Reserve Bank has signalled that it is likely to make a further increase in official interest rates in 2008 if inflation does not abate.”

The D&B index for expected sales is down four points to 14, with 36% of executives expecting an increase in sales and 22% expecting a decrease. The profits index is down eight points to zero, with 33% of executives expecting profits to rise and 33% expecting a fall.

Employment expectations are down one point to an index of two, with 11% of executives expecting an increase in staff and 9% expecting a reduction. Capital investment expectations are up three points to an index of four, with 9% of executives expecting an increase and 5% expecting to cut spending. Inventories expectations are down one point to an index of one.

The selling prices index is up six points to an index of 59, with 62% of firms expecting to raise prices and 3% expecting to decrease them.

In summary:

Outlook for June quarter 2008:

– Expectations for selling prices have increased, with 62 per cent of firms anticipating their prices will be higher in the June quarter than a year earlier.

– The outlook for capital investment is stronger with the overall index now at 4 per cent.

– Expectations for sales and profits growth have fallen, 36 and 33 per cent of executives respectively expect increases in these indexes.

– The outlook for employment growth is slightly weaker but remains in positive territory.

Interest rates:

– Thirty nine per cent of executives expect interest rates to be the most important influence on their business in the quarter ahead, an increase of 13% per cent since the previous survey.

Tightening credit market:

– Executive concerns regarding the credit market remain high, with 60 per cent expecting a tightening market will have a negative impact on operations.

Petrol prices:

– Thirty one per cent of executives expect fuel prices to be the most significant influence on operations in the coming quarter, up 4 per cent since the previous survey.

– Recent movements in petrol prices have had a negative impact on 78 per cent of businesses, with 20 per cent a significant impact.

Actual for December quarter 2007:

– Growth in sales was the highest since the March quarter 2004.

– Employment growth was the best in three years.

– Profits growth was flat after one positive quarter.

– Capital investment growth was positive.

– Selling price rises were four points below expectations.

Promising signs for an easing of inflationary pressure

The latest Dun & Bradstreet Business Expectations Survey is showing early signs of success in the fight against inflation, with a five point decrease in selling prices expectations since the previous survey.

The survey reveals that fifty seven per cent of firms now anticipate higher selling prices in the June quarter than a year earlier, while three per cent expect a decrease. This result comes on the back of national accounts and retail sales figures which indicate that domestic spending has started to moderate.

Following high December quarter expectations, the outlook for growth in profits has declined to an index of zero. Thirty two per cent of executives now expect an increase in profits and thirty two per cent expect a decline. This flat growth outlook reflects the impact of lower sales volumes and higher costs.

Sales growth expectations have also declined from December quarter highs, with 38 per cent of executives now expecting an increase in sales growth in the June quarter. Despite the decline the sales index is significantly higher than twelve months ago, with sales growth expectations up thirteen points on the June 2007 quarter. The net retailers’ sales expectations index is particularly strong; at twenty nine it is fourteen points above the all firms index of fifteen.

Expectations for capital investment have strengthened marginally with the overall net index now at two per cent. Durables manufacturers are showing quite strong expectations for growth in capital investment with the index at seven per cent.

The employment indicator has returned to negative territory after one quarter in the positive. Twelve per cent of executives now expect to have more staff in the quarter ahead than they did a year ago; thirteen per cent expect to decrease staff numbers.

Executive concerns regarding the tightening credit market remain high, with more than half (56%) of executives expecting a tightening of credit will have a negative impact on operations.

Meanwhile, just nine per cent of executives anticipate that they will seek finance or credit to help their business grow in the quarter ahead. These findings come as the RBA warns that banks will make borrowing harder as part of the process of reigning in excess growth in the economy.

According to Christine Christian, Dun & Bradstreet’s CEO, early indications of an economic slowdown are positive however the wide reaching impacts of inflation are likely to continue impacting business for some time.

“Early signs of an economic slowdown are beginning to show through in executive expectations for sales, profits and selling prices. National accounts data and retail sales figures are also indicating a slow down,” said Ms Christian.

“The impact of the high cost of funding and the tighter credit market are being seen in expectations for business growth – less than ten per cent of executives expect to seek finance to grow their business in the coming quarter.

“All of these figures indicate that the RBA’s fight against inflation is beginning to take effect. However, despite this, it is likely that inflationary pressure will continue to have wide-reaching impacts on the economy for some time.”

Topping the list of concerns this month, thirty nine per cent of executives rank interest rates as the most important influence on operations. This figure remains unchanged since the previous survey however concerns from the retail sector have increased by eight per cent. Fifty three per cent of retail executives now rank interest rates as the most significant influence on operations in the coming quarter. The continued high level of concerns regarding interest rates, particularly by retailers, comes as the official cash rate has reached a 12 year high.

Wages growth has overtaken petrol prices as a primary concern for executives. An increase of 14 per cent in this index since December has pushed concerns to their highest level in eight months. Twenty seven per cent of executives now expect wages and salary growth to be the most important influence on their business in the quarter ahead. This relatively steep increase is likely a reflection of executive concerns that high inflation figures could feed back into wages expectations.

Petrol price concerns have eased slightly but remain high as oil prices continue their surge above USD $100 a barrel. Twenty six per cent of executives rate the cost of fuel as the most important influence on operations.

Meanwhile, the impact of recent movements in petrol prices remains unchanged since the previous survey, with 78 per cent of executives noting a negative impact on operations.

According to Dr Duncan Ironmonger, Dun & Bradstreet’s economic consultant, the Australian economy needs to see an increase in capacity and a reduction in demand if inflation is to be constrained in 2008.

“Capacity increase will be a slow process dependent on increases in labour supply and infrastructure. As a result, all official policy action is focused on quickly reducing demand,” said Dr Ironmonger.

“According to the December quarter national accounts and retail sales for January, a slow down in consumer spending is under way. A continuation of this slow down is critical if inflation is to ease this year.

“The Reserve Bank pushed the cash rate up to 7.25% last week. This move combined with other increases in the cost of funds has resulted in home mortgage rates reaching a level of around 9%; this may be sufficient to put the inflation genie back in its bottle.”

 

©2019 All Rights Reserved. MHD Magazine is a registered trademark of Prime Creative Media.