Rates to be 2.5%, cost of living falls

A massive fall in petrol prices has pushed the cost of living down for the first time in two years and opened the way for interest rates to fall to as low as 2.5 percent.Petrol prices fell by more than 18 percent in the December quarter as unleaded petrol fell from around $1.50 per litre in September to close to $1.00 per litre in December, mirroring falling oil prices.According to official figures released today, the consumer price index – which tracks the cost of living in Australia – fell by 0.3 percent in the December quarter. Over the 12 months to December, the CPI rose by 3.7 percent, well below its previous reading of 5 percent.The fall in the cost of living - which is the fastest decline logged in 10 years - is expected to open the way for further rate cuts from the Reserve Bank of Australia (RBA), starting with its first meeting of the year, to be held next week.Economists expect the RBA to trim the cash rate by 75 basis points, a move that would take the cash rate to 3.5 percent.“There’s nothing of concern in these figures for the Reserve Bank that will stop it aggressively cutting interest rates next week,” Riki Polygenis, economist at ANZ Bank told ninemsn.She believes rates will fall by 75 basis points next week and will ventually fall to 2.5 percent this year.While the fall in prices and interest rates may be good news for consumers, other economic figures released today showed a sharp slowdown in economic activity.The Westpac/Melbourne Institute index of economic activity - which tracks the likely pace of economic growth in the future - contracted by 2.2 percent in November, and analysts said it showed that the odds of Australia entering a recession this year are shortening.“With the –2.2 percent growth rate for November we are now reporting the first negative reads for growth since May 2001,” said Bill Evans, Westpac’s chief economist. “In the past this has been a useful signal ofthe likelihood of Australia experiencing a recession.

28/01/2009 By Stuart Fagg, ninemsn Money

3 day work week

British workers could have their working week cut to three days under plans being considered by the government to help companies cope with recession.The government is understood to be considering paying firms to cut the working hours of thousands of staff instead of retrenching them in an attempt to stop unemployment soaring past two million.Now business secretary Peter Mandelson is facing calls to offer compensation for workers who have their hours cut.Unnamed ministerial sources told The Observer newspaper that a compensation scheme for workers was an option being discussed but was "not imminent"."Government sources said there were issues about whether to restrict compensation to the car industry or apply it to all firms," the newspaper said.The Department for Business is already advising employers on its website to consider cutting staff hours as a way to save money, saying it might be better than making staff redundant.Similar measures were after a series of crippling strikes by mine workers in the 1970s which had dramatic knock-on effects through the rest of the nation's economy.Former prime minister Margaret Thatcher introduced a short-time working directive in the 1980s to cover earnings lost through shorter hours.

Aus economy

Federal Treasurer Wayne Swan says he won't speculate on whether Australia will go into a recession, despite a new report saying Australia's budget is "buggered".The Access Economics report, to be released on Monday, warns Australia will go into recession this year as the economic boom unwinds.A blow out in the account deficit and a loss of 300,000 jobs is likely to be a result of the downturn, it says.The report demonstrates the difficult global conditions that Australia confronts, topped off with a shrinking economy in the US and slowing in economic growth in China, Treasurer Wayne Swan told ABC Radio on Monday.But when asked whether Australia would go into a deficit, he replied: "I certainly don't speculate about that."I mean every day will bring a new set of private sector forecasts and I don't intend to... respond to them on a daily basis."But I guess what this report does do is point to the impact of a global recession, and what it will mean for world growth."The government would respond "if necessary in a timely way", with a further stimulus package if it was needed, Mr Swan said.

More on this subject from an ABC report....
A key economic forecast says Australia will definitely fall into recession this year and has described the Federal Budget as being "buggered".The latest business outlook from Access Economics says that Australia's prosperity will unwind quickly because of the slowing Chinese economy and unemployment will be up to 7 per cent by next year.The report says global growth is slowing at a scary speed, and Australia's growth prospects are expected to follow the lead in similarly swift fashion.Chris Richardson from Access Economics says the implications for this year's Federal Budget are tough, and the Government faces some ugly policy choices."It doesn't however mean that the Government should stop doing what it's doing," Mr Richardson said.Federal Treasurer Wayne Swan told ABC Radio's AM program that budget revenues will be more seriously affected than first thought.He says the report confirms the very difficult global conditions faced by the Australian economy, but he would not speculate on a recession."Revenues will take a heavier hit than was thought at the end of last year, but we'll account for that in good time," he said"We face the prospect of the United States economy shrinking, and of course the prospect of China not growing anything like [what] was expected only a few months ago.
"There's no doubt that a slowing China will have a very substantial impact on countries in this region, and most particularly Australia."Both those events are deeply concerning for growth in this country and the impact in terms of revenue for the Budget and also the impact on employment."

A Path Less Travelled

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