Inflationary pressures persist - Hagop's commentary

The printing and associated industries face the prospect of further increases in interest rates following the release today of new inflation data by the Australian Bureau of Statistics (ABS) confirming the continuation of inflationary pressures within the Australian economy.

According to the ABS, inflation was reported to have increased by 0.9 per cent during the December 2007 quarter to produce an annual inflation rate of 3.0 per cent.

The headline rate has now reached the upper limit of the Reserve Bank's target while the Reserve Bank's preferred measure of inflation, the underlying rate of inflation also was reported to have increased during the December quarter.

The underlying rate rose between 1.0 per cent and 1.1 per cent implying that the annual underlying rate of inflation is currently running between 3.4 per cent and 3.8 per cent.

During the December quarter the most significant price pressures came from automotive fuel; deposit and loan facilities; house purchase; rents; domestic holiday travel and accommodation; and other financial services. The most significant offsetting price reductions came from fruit and vegetables; pharmaceuticals; and audio, visual and computing equipment.

Printing Industries national policy and research manager, Hagop Tchamkertenian, said the release of the inflation data comes at a time of heightened economic uncertainty.

"Global financial markets are facing volatile times fuelled largely by investor nervousness that the United States will slide into a recession due to the sub-prime crisis," he said.

"The Federal Reserve has responded by slashing official interest rates and the United States Government has also announced a fiscal stimulus package.

"Time will tell whether or not these measures will be sufficient to reassure nervous investors. Australia has not been immune to the developments in the United States as reflected by the plunge in the stock market."

Two days earlier another major measure of inflationary pressures - producer prices was released which showed that despite moderating prices during the quarter for final stage goods which were reported to have increased by 0.6 per cent, there was a pick up in the annual change to 2.8 per cent. For the year to December preliminary stage prices were reported to have risen by 4.7 per cent while intermediate stage prices rose by 4.3 per cent.

The latest producer prices data shows once again that businesses at each stage of production are absorbing costs. The producer prices data shows that raw material prices in the printing, publishing and recorded media sector rose by a modest 0.3 per cent during the quarter. During the year to December, the outcome was a decline of 1.2 per cent.

Output prices for the sector were reported to have fallen by 0.1 per cent during the December quarter but rose by a modest 0.6 per cent during the year to December.

At a more disaggregated level, output prices for printing and services to printing sector fell by 0.3 per cent during the quarter and by 1.8 per cent during the year to December.

In the publishing sector output prices fell by 0.1 per cent during the quarter but increased by 2.1 per cent during the year to December.

Hagop said more economic uncertainty lies ahead with the prospect of further tightening of monetary policy settings in Australia.

"Today's inflation data has increased the prospects of another rate hike by the Reserve Bank in February. The underlying rate of inflation is now well above the Reserve Bank's target and sectors of the economy that are not exposed to foreign competition are reporting relatively high rates of inflation.

"The Reserve Bank has made it clear that it is focussing on curtailing inflationary pressures within the economy. Bringing inflation under control remains a higher priority for them than ensuring robust economic growth," he said.