INTEREST RATES OUTLOOK

RBA HOLDS AT 5.5%
The board of the Reserve Bank of Australia has held firm with the basic cash interest rate remaining at 5.5 percent for what is now 8 months. They made no comment on the state of the economy in today's statement.

THE NATIONAL ECONOMIC SNAPSHOT

The rise in Consumer Price Index which equates to an annual inflation rate of 3 percent is the result of many pressures with the lift in petrol pricing at 12 percent being cited as the most to blame. Inflation is now the highest for two and a half years and it now stands at the maximum the RBA says it will tolerate before moving on interest rates. Manufacturers say they are currently weathering a torrid time with the cost of production rising at the fastest rate for over four years. The blame is being put on the soaring cost of raw materials and overseas competition.

Access Economics investment survey has found rising costs are slowing the recent investment boom with some big ticket new projects being put in doubt. It said the value of committed projects has dropped by 4.4 percent from a year ago and there are signs that rising costs and staff shortages, particularly in WA, were pushing up prices to an uneconomical point. Meanwhile, the effects of a slump in exports and the higher cost of oil have combined to worsen the balance of payments.

Trade figures indicate the long-awaited increase in export volumes remains elusive. Australia has now recorded 44 months of consecutive monthly deficits - the longest for 20 years. On the positive side, the Australian Industry Group is forecasting a continuation of strong engineering and commercial construction activity.

The current growth rate is over 8 percent. They say it is being fuelled by government spending on infrastructure and strong resources investment. And on the very positive side, the new car sales industry continues to go gangbusters as the numbers are on course to top a million units this year. That is over 5 percent up from last year's record sales. Toyota continues to be the leader due to its range of vehicles and growing popularity of its small to medium sized cars.

BUSINESS NEWS

FINANCIAL PLANNING PUSH
The Financial Planning Association has launched a $3 million advertising campaign to be run on TV and print on what it describes as the “virtues of consumers getting good guidance”. Initial reactions have included criticism from the industry superannuation funds, which are not on the list of preferred products sold by such planners. They are quick to point to the way the ASIC recent survey revealed that 90 percent of FPA advice was to a fund related to the planner and the new advertising does not make this clear.

LESS TAX PLEASE
The Business Council received a cool reception to its recently launched lobbying of the government to reduce corporate taxes. (Only in Luxembourg and Norway do businesses pay more company tax.) The basis is the potential increased incentive for investment. Recent figures show company tax has now increased to 5.3 percent of GDP.

OIL PROFITS SOAR
The various global oil companies are all recording sensational results with profits reaching dizzy heights. The latest is Exxom-Mobil which cleared $US10 billion for the last quarter.

BUSINESS OUTLOOK

PROFIT RUN TO END
Researcher BIS Shrapnel is forecasting the run of record profits could soon end due to the way many companies have generated profits from cost cutting. Their report says this now presents a situation where many are unable to continue growing with shortages in trained staff being one of the leading problems.

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