by Alan Thornhill
If you have ever wanted to see Talahassee,Â it’s time to start packing.
The $A is rising so strongly against the greenback now that it hit 94.3 US cents this morning.
So your trip should be cheap.
Indeed, with the Reserve Bank itching to raise Australia’s interest rates again next Tuesday talk of parity between the two currencies is not all that far fetched.
Especially if HBOS Australia economist Alan Langford is right. He is not predicting a 0.5 percentage point rise in rates next Tuesday. But he is warning that something “more aggressive” than the usual 0.25 percentage point rise “cannot be ruled out.”
Oil prices again hit a new record of $US102 a barrel overnight. While the strong $A is giving Australian motorists some protection from fuel price hikes, that is sure to worry the Reserve Bank board.
The Reserve Bank once regarded oil prices as just one more “volatile” item, like fruit prices, which could safely be ignored when setting rates. And, even now,Â the prospect of severe snow storms in the North Eastern States of the US is, undoubtedly, pushing up oil prices.
Higher fuel prices, though, do seem to have found a permanent place now, in the world’s financial landscape.
Reserve Bank records show that we last saw parity between the $A and the $US in June 1982.
Twenty years later, in June 1982, the $A was worth just 50US cents.
Peter Costello, who was then Treasurer, made the best of it by calling the $A “super-competitive.”
The then weak $A did, undoubtedly, boost Australia’s exports at that time.
But, for most Australians, it meant holidays at home.
Australia’s interest rates are already some 5 per cent above those now available inÂ the United States.
And the US Fed chief, Ben Bernanke, is again talking of cutting US rates, even though America, too, is already facing new challenges from rising inflation.
That has implications for Australia.
One is that hot money might, once again, flood into this country.
Especially as major commodity prices, like those of iron ore and coal are already at record levels.
A flood of hot money, attracted by Australia’s high interest rates,Â would only add to this country’s already high inflationary pressures.
But don’t tell the Reserve Bank board. It has enough to worry about already.
by Alan Thornhill
World oil prices surged overnight, adding fuel to Australia’s inflationary pressures.
Crude oil futures rose by more than $1 , setting a new record price of $101.15 a barrel.
Local factors contributed heavily.
These included forecasts of heavy snow in America’s north-east and the weakness of the $US.
The $A, though, rose overnight, partly on expectations of further interest rate rises, to trade close to 93US cents.
That will help, a bit.
As we know, Reserve Bank and Treasury economists like to exclude so-called volatile items, like petrol prices, when they calculate what they call the nation’s underlying inflation rate.
And it is the Singapore price of crude oil, not the US price, which directly affects petrol prices in Australia.
However, oil is a global commodity. What happens, pricewise, in one market spreads, very quickly, to others.
And economists find it more difficult to exclude items, like oil prices, from their calculations, when price rises become persistent.
There are now signs that this is happening.
New records, for oil prices, have now been set on two consecutive weeks.
Last week’s record, now surpassed, was $US100.85 a barrel.
The Treasurer, Wayne Swan, admitted last night that underlying inflation in Australia has been “on the march” since the start of 2006.
He noted, too, that the Reserve bank has forecast that Australia’s inflation will remain above 3 per cent – the top of its target range – for the next two years.
Just about the last thing Australia needs now, is yet another surge in world oil prices.
The big question, of course, is will it add to pressure for another rise in local interest rates.
The answer, sadly, is yes.
by Alan Thornhill
The mineral boom is alive and well in Western Australia.
But the impact of rising interest rates is being felt in the West, just as it is in other parts of the nation.
As always, small business has been among the first to be affected.
The Sensis Business Index for February shows the results.
It reveals that small business owners in the Western State have generally experienced “weaker conditions” over the past three months.
Small business profits, in that time, were well below those seen in the same period 12 months earlier.
The report’s author, Christena Singh, said small business owners had been caught between deteriorating sales and strong inflationary pressures.
Sales growth in the State was still above the national average.
But it was also slower than it has been at any time since August 2006.
Ms Singh said small business confidence in the State had fallen by 18 points over the past year.
However she said small business owners seemed to be taking all this in their stride.
“It appears to be just a bump in the road, in what have been – by any measure – extremely strong business conditions,” Ms Singh said.
by Alan Thornhill
Fighting for great causes is glorious – while you are in opposition. The consequences can be a little troubling, though, if you wake, one day, in government.
Things are a bit like that, right now, for Labor. The South Australian Labor Premier, Mike Rann, wants to boost his State’s already impressive endeavours in uranium exploration and production. And he specifically included India, when asked to identify countries likely to increase their nuclear power output.
So far, so good. But that put Australia’s new Foreign Minister, Stephen Smith,on a sticky wicket in Perth yesterday, when he visited the cricket, with an Indian friend, Shyam Saran, who is also an envoy of the Indian Prime Minister.
Unlike its neighbour, Pakistan, India has a good record on non proliferation. As Mr Saran happily noted, it hasn’t allowed its nuclear secrets to leak. But India hasn’t signed the Nuclear Non Proliferation Treaty, either. Nor is it likely to do so.
That leaves Australia in a bit of a spot. Likely, that is, to miss out on sales it wants to make to India. Especially as its denial, of such an important resource,l are weightier in semantics than reality.
There another point of of embarrassment for Australia in all this.
The previous government, of Prime Minister John Howard, agreed “in principle” last year to sell uranium to India. On the usual “strict conditions,” of course.
Mr Smith has now announced that the Rudd Labor government will reverse that decision.
That’s not a particularly good look, especially with Australia’s Trade Minister, Simon Crean, now in India, on a trade boosting mission. Especially after that recent unpleasantness, after an earlier cricket match.
The financial wire service, Bloombergs, ran the story last night with a suitable touch of disappointment, emphasisng that word “reversing.”
Once again, not a good look for Australia, which has the world’s biggest known uranium reserves.
Winning elections is wonderful. But it does present problems.
Weathercoast by Alan Thornhill
A novel on the murder of seven young Anglican Christian Brothers in the Solomon Islands.
Available now on the iTunes store.
Alan Thornhill is a parliamentary press gallery journalist.
Private Briefing is updated daily with Australian personal finance news, analysis, and commentary.
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