5 April 2005
Inflationary pressures grow as Businesses dismiss interest rate rises
The latest D&B National Business Expectations Survey shows...
Outlook for June quarter 2005
- Expectations for increases in selling prices - the highest in 23 months
- Only 28% of executives believe an interest rate rise will impact negatively on their business
- Sales, profits, and capital investment growth - all down
- Employment outlook is unchanged - still quite strong
- Inventory expectations the lowest since March quarter 2003
Actual for December quarter 2004
- Further falls in sales and profits growth
- Selling prices again above expectations (7th month in a row)
- Employment again above expectations (3rd month in a row)
- Capital investment growth remained low
Media Release
The economy may be cooling and interest rates rising, but Australian businesses remain optimistic that the market will bear higher selling prices, according to the latest D&B Business Expectations Survey, released today.
In a strong indicator of growing inflationary pressure, the number of Australian businesses expecting to raise their selling prices is now at its highest level in more than 20 months. Actual selling prices have risen above expected levels for seven consecutive months, and more than a third of the businesses surveyed are anticipating further rises in the June quarter of this year.
Businesses also appeared to be dismissive about the impact of rising interest rates. Despite much public discussion about the effect of rate rises on an apparently cooling economy, only 28% of executives surveyed believed that a quarter percentage point increase would have a negative effect on their business.
Business concern about the effects of interest rate rises actually reached its lowest level in several months during March, the month in which the Reserve Bank decided to take action and increase interest rates.
At the same time, the outlook for all other indices - sales, profits, employment, capital investment and inventory - is either flat or significantly down on the levels recorded in previous Business Expectations Surveys. The outlook for sales dipped five points and expectations for profits decreased by six points.
Lower sales and profits growth expectations followed on from a decrease in the level of actual sales and profits growth for the December quarter 2004. Both were well below expectations, confirming the trend predicted in the previous Survey - that Australian business conditions, after 14 years of extended growth, now seem to be at a tilting point.
"There do appear to be inflationary pressures acting upon businesses and their selling prices going forward," Ms Christine Christian, Chief Executive Officer, D&B Australia & New Zealand. "The resilient attitude of Australian businesses is interesting, because they obviously believe the market can bear further increases. But at the same time, selling prices are a key inflationary indicator, which seems to be giving us a clear message about the direction of the economy."
Ms Christian said that selling prices expectations were approaching record highs. "This seems to indicate that businesses may be considering an increase in selling prices to protect their margins, possibly reacting to the anticipated lower growth in sales and profits. This situation may have to be corrected, if sales and profits growth continue to dip as expected, or if further interest rate rises put pressure on consumers' disposable income."
She said that while profit expectations were dropping, Australian businesses were also maintaining a relatively optimistic outlook on employment, with reasonably strong growth expected in the June quarter. Sixteen percent of executives expect to hire more staff than a year ago, while nine percent expect to decrease staff numbers.
"Inflationary pressure and skill shortages would be expected to have a strong effect on wage levels, but in fact, it appears that wages are remaining relatively stable," she said.
Of the businesses surveyed, 77% experienced no wage rises and only 15% said they had been forced to increase wages in order to retain or recruit workers in the tight labour market.
D&B Economic Consultant, Dr Duncan Ironmonger, said that it was obvious that businesses were reassessing the June quarter growth prospects.
"As we have moved closer to June, businesses have lowered their expectations a lot, especially for growth in profits," he said. "They now expect the June quarter to be one of slower growth than they had expected in February, and much slower again than they thought in January."
"However, selling prices continue to inch up and indicate inflationary pressures in the economy. It will be interesting to see how the RBA decision to increase interest rates affects this and whether further increases will be introduced if this inflationary trend continues," he said.
The D&B index for expected sales has fallen five points to 14, with 38% of executives expecting an increase in sales and 24% expecting a decrease. The profits index is down by six points to 11, with 35% of executives expecting profits to rise and 24% expecting a fall.
Employment expectations are unchanged, at an index of seven, with 16% expecting an increase in staff, and 9% expecting a reduction. Capital investment expectations are down one point, to an index of three, with 7% now expecting an increase and 4 % expecting to cut spending. Inventories expectations are down four points to an index of one.
The selling prices index is unchanged, at an index of 27, with 36% of firms now expecting to raise prices and 9% expecting to decrease prices.
For further information, or to arrange an interview, please contact:
Danielle Woods
D&B PR Manager Australia & New Zealand
(02) 8270 2926
Dr Duncan Ironmonger
D&B Economic Consultant
(03) 8344 2131
About the Survey
D&B Australasia conducts latest Business Expectations Surveys every month. Each quarter over 1,200 business owners and senior executives representing major industry sectors across Australia are asked if they expect increases, decreases or no changes in their upcoming quarterly Sales, Profits, Employment, Capital Investment, Inventories and Selling Prices. Since its introduction in Australia in 1988, the survey has proven to be a highly reliable measure of economic performance.
Note: The index figures used in the survey represent the net percentage of survey respondents expecting higher sales, profits, etc., compared with the same quarter of the previous year. The indices are calculated by subtracting the percentage of respondents expecting decreases from the percentage expecting increases.
About D&B
D&B is the world's leading provider of business-to-business credit, marketing and purchasing information and receivables management services. D&B manages the world's most valuable commercial database with information on more than 130 million companies.
Information is gathered in 193 countries, in 95 languages or dialects, covering 186 monetary currencies. The database is refreshed more than one million times daily as part of D&B's commitment to provide accurate, comprehensive information for its more than 150,000 customers.
The Australasian operations were bought out by the senior management group in August 2001. It was the first MBO of a wholly owned subsidiary in D&B's history worldwide.
Today Lazard Carnegie Wylie owns an approximate 90% stake in DBA and the local management team a 10% stake.
Strategies for future growth include developing DBA's commercial and consumer credit referencing business; expanding its receivables management outsourcing business; maintaining its lead in the development of unique credit and risk scoring products; and developing new products specifically tailored to the Australasian market. DBA currently employs over 500 people in Australia and New Zealand.
