D&B Predicts Inflationary Pressures to Mount in Australia

As 2006 draws to a close, business has bleak expectations for the approaching March quarter ?07, with inflationary pressure set to remain and both the sales and profits outlook continuing on their downward spiral. According to the latest Dun & Bradstreet (D&B) Business Expectations Survey, this comes despite the positive impact of recent falls in petrol prices.

The November survey, released today, reveals that over half (53%) of business executives expect to further raise their selling prices in the March quarter 2007. More than one third (36%) of business executives expect to see a decrease in profits compared with March quarter 2006.

The Sales outlook remains dreary, with approximately one third (32%) of executives expecting a decrease in sales compared with the 2006 March quarter. For the quarter ahead, employment expectations also remain extremely weak, with more than one in ten (11%) expecting to decrease staff numbers.

Expectations for pre-Christmas spending have slightly improved however still remain low, with only 8 per cent of executives believing that it will have a positive impact on their business. Compared with 2005 a greater number of executives (19%) expect this year?s pre-Christmas spending to have a negative impact. Almost one quarter (24%) expect no impact and almost half (49%) are unsure of the impact on their business.

According to Christine Christian, D&B Australasia CEO, the recent economic climate is still continuing to cause uncertainty for Australian business, with negative expectations continuing into the first quarter of 2007. ?For many businesses 2006 has been a tough year, with factors such as high petrol prices and interest rate rises putting a large and unwanted strain on overall business productivity.? ?With spending expected to be down at Christmas combined with increases in selling prices and negative profit expectations, businesses look to be in for a rocky start to the new calendar year.?

?Retailers and wholesalers will feel increased pressure throughout the festive season, with profits and sales expectations particularly low,? said Ms Christian.

Despite fuel prices remaining the key concern for Australian business executives, there has been a noticeable decline in its level of importance compared to previous months. In November only 40 per cent continue to expect fuel prices to have the most significant impact on business operations in the coming quarter (down from 70% in October). More than one in five (21%) executives now expect wages and salary growth to be the most significant cause for concern, up from 12%. Just over two in ten (22%) of executives are also now concerned with interest rates (up from 4% in October).

D&B Economic Consultant, Dr Duncan Ironmonger, said that the D&B Business Expectations surveys over the last six months had painted a dismal picture of the Australian business landscape and had given an insight into the uphill battle now facing many executives moving into the March quarter.

?With all sectors still expecting negative growth across the board, it will be some time before we see an end to the after-effects caused by the shifts in the Australian economy.? ?Last week, despite lingering concerns about inflation and in view of growing uncertainty about the strength of the economy, the Reserve Bank decided to leave official interest rates unchanged. This was a judicious decision as the November increase of official cash rates from 6.0 to 6.25 per cent was still having a negative effect on business.?

The latest national accounts figures from the Australian Bureau of Statistics show a slowing economy, with a trend rate of real growth for the September quarter of only 0.4 per cent, less than half of the average rate over the last 15 years. ?The D&B surveys indicate this rate will be even lower in the current December and coming March quarters,? said Dr Ironmonger.