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.

MREC HERE

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