Reserve Bank rate rises bad for printing says

According to by Printing Industries Hagop Tchamkertenian, Manager of Industry and Commercial Policy, it would have been preferable to wait another quarter to determine if one-off factors were responsible for the June quarter jump in inflation or to see if whether other factors were at play.

"Comments about the impact of petrol and banana price increases being responsible for the rise in inflation are not a good enough reason when at least one of these factors, high banana prices, is likely to diminish significantly in coming months,” he said. "This rate hike is bad news for the printing and related industries. Business conditions are currently poor and now with interest rates rising once again, the industry can expect to feel a negative impact on trading in the next three to six months.

"What makes our industry so vulnerable to interest rate rises is the profile of industry sales. More than 70 per cent of printing industry sales are made to sectors of the economy that are either sensitive or very sensitive to movements in interest rates," he said.

The rate hike comes on the heels of last week's inflation data for the June 2006 quarter which showed headline inflation running at 4 per cent, This is a five year high if the GST impact on inflation is included or an eleven year high if the one-off GST impact on prices is excluded.

With producer prices also trending up it appears the case for a rate hike was made well before the Reserve Bank Board met on Tuesday to discuss monetary policy. At six per cent, official interest rates are now at a six year high with today's increase representing the seventh consecutive increase.

"The Reserve Bank justified the decision to raise interest rates on the basis that economic activity remained strong and that inflation pressures had increased," said Tchamkertenian. "The Board's assessment was based on the gradual increase in underlying inflation this year, the wider background of above-average global growth and strong domestic demand and the projection that underlying inflation in the short-term future would exceed previous forecasts. Given this the Board decided to act now to contain inflation in the medium term."

He said the industry already had enough challenges coping with developments in globalisation through to technology to market conditions and poor perceptions of the industry. "Now it also has to tackle the problem of rising interest rates and a slowing economy."