8 August 2006
Strong inflationary pressure as oil prices bite
The latest D&B National Business Expectations Survey shows...
Outlook for December quarter 2006
- Businesses expect a dramatic rise in selling prices; the highest since the introduction of the GST in 2000
- Sales, profits and employment growth expectations are negative for the second consecutive quarter - as poor as during the 1991 recession
Fuel prices dominate expectations
- More than four out of five (82%) business executives believe that fuel prices will be the dominant influence on their operations for the year ahead
Interest rate effects
- Over one quarter (26%) of businesses experienced a negative impact following the interest rate rise in May
- Fifty per cent of executives think a further one-quarter per cent increase in interest rates will have a negative impact on their business (asked before last weeks RBA announcement)
Income tax cuts
- Only seven per cent of business executives believe that the income tax cuts in July will have a positive effect on their business
Actual for June quarter 2006
- Continuing negative performance for sales, profits and employment growth
- Disappointing results for the second half of 2005-06 financial year
Download the Aug-06 detailed survey's results.pdf (320KB)
Media Release
Business is expecting a dramatic increase in selling prices in the December quarter, a sign that inflationary pressure will remain in the Australian economy, according to the latest D&B Business Expectations Survey.
The July survey, examining expectations for the December quarter, also found that business expects sustained high oil prices will be the dominant influence on operations and regard the recent interest rate hike as a further negative impact on business.
More than four out of five (82%) business executives said that fuel prices are the key issue influencing their business moving forward.
The D&B survey also shows that more than one-quarter of businesses (26%) said they had been negatively impacted following the interest rate rise in May, and fifty per cent of executives believed another one quarter of a per cent increase would have a further negative impact on their business - a question asked before last week's RBA decision that rates would be increased.
D&B Australasia CEO Christine Christian, believes this month's results point to increased upward pressure on inflation and that oil prices, which for so long had been absorbed by business, were now starting to have a significant impact on prices.
"For many months business executives have been reporting that high oil prices had become accepted as part of day to day life and could be absorbed. However the latest survey shows that sustained high oil prices are now having a very real impact on business, adding to inflationary pressure in the economy" said Ms Christian.
"Business is signalling that their response to this inflationary pressure will be to protect margins by pushing selling prices higher."
However, while business is planning to increase selling prices, the market is already signalling that demand is softening in many sectors.
Over the last month, 33% of executives said they had noticed signs of a slowdown in consumer spending, with only 6% seeing signs of an increase. For retailers, 52% had seen signs of a slowdown and 6% signs of an increase.
Asked about the effect on their business of the income tax cuts from July 2006, 68% of executives said there would be no impact, 6% a small positive impact and 28% were "not sure". For retail executives, 79% said no impact, 10% a small positive impact, 1% a small negative impact and 10% were not sure.
D&B Economic Consultant, Dr Duncan Ironmonger, said that the latest D&B survey indicated both a poor end to the financial year 2005-06 and a disappointing first half for 2006-07.
"All sectors - manufacturing, wholesaling and retailing - reported negative sales and profits growth in the March and June quarters of 2006. For the December quarter 2006, only wholesaling expects positive growth in sales and all sectors now expect negative growth in profits" said Dr Ironmonger.
"Business executives are in agreement with the Prime Minister that the ongoing high cost of petrol is the "greatest worry". More than 80% of business executives expect that fuel prices will be the dominant influence on their operations in the new financial year. Only 11% think wages growth will influence their operations the most."
Manufacturers and wholesalers can no longer contain cost pressures from high fuel prices. More than a net one-third (34%) of manufacturers and wholesalers put up their selling prices in June quarter. More than 40% expect to do so in the coming December quarter.
"The Reserve Bank's August decision to give a further increase in interest rates will just add further cost pressure on business, will reduce consumer spending and do nothing to alleviate the oil price shock,' Dr Ironmonger said.
The D&B index for expected sales is down three points to minus seven, with 23% of executives expecting an increase in sales and 30% expecting a decrease. The profits index is down six points to minus 15, with 20% of executives expecting profits to rise and 35% expecting a fall.
Employment expectations are down four points to an index of minus six, with 6% expecting an increase in staff, and 12% expecting a reduction. Capital investment expectations are unchanged at an index of zero, with 4% expecting an increase and 4% expecting to cut spending. Inventories expectations are up one point to an index of minus four.
The selling prices index is up 15 points to an index of 37, with 47% of firms now expecting to raise prices and 10% expecting to decrease prices.
For further information, or to arrange an interview, please contact:
Suzanne Beaumont
Media
Hill & Knowlton
(02) 9286 1270
Christine Christian
CEO
D&B Australasia
(03) 9828 3540
Dr Duncan Ironmonger
Economic Consultant
D&B
(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.
