Three more bad months

If the Reserve Bank decides to jump all over potential inflation to rein in price increases for consumer goods and services flowing from the mining boom, expect three very bad months for small businesses.

Households and business will continue to save and slow growth until there is greater certainty about prospects for an even distribution of the benefits that are yet to be experienced by most households from the presumed national mining boom.

When the Reserve Bank gets official inflation data for the last three months and a truckload of data in the next three weeks on company earnings, smart companies will prepare for three very bad months.

The Australian Bureau of Statistics has kept the lid on rate rises in the last three months, reporting job vacancies fell 4.5% in the three months to May this year – the largest fall since 2003. Housing credit grew at its slowest pace for 34 years and households are facing constant calls from credit card lenders to pay their net debt.

There is no doubt Glenn Stevens and his deputy inflation sheriffs are firmly committed to killing any wage breakouts and narrowing the band of acceptable inflation.

At the same time, their determination to push up rates will invite a speculative global rush into the Australian dollar that soared from a low of $US1.0634 in the hours before Glenn Stevens’ warning, to a high of $US1.0716 during his address as traders punted on the chances of further interest rate hikes.

This action will be taken despite falls in the number of jobs in the private sector, bank net-lending growing by less than 1% after nil growth in April. Hotels, motels and serviced apartments went backwards in the March quarter. Even Coca-Cola sales are expected to follow the downward path until we get to summer.
 
Yet, Ric Battellino, the Reserve Bank deputy governor, says: “We’re at a stage in the cycle where the world economy is still gathering strength. That’s going to be the dominant force in the world and interest rates will have to rise around the world to combat inflation.”
 
Elections are always a wet blanket on retail sales and tourism revenues, but the economy is likely to stall in the next quarter.  There will be furious debates around the globe about reducing sovereign debt, and getting budgets back into surplus and the continuing efforts of Tony Abbott to get a new election around the carbon tax.
 
None of this should deter smart companies from planning to find ways to increase import substitution and grow their domestic markets, or delay planning for a significant global export market in the second quarter of this financial year. The economy will grow, the US will manage its debt ceiling, oil prices will go lower and prospects for the new year are improving significantly.

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Dr Colin Benjamin is an entrepreneurship and strategic thinking consultant at Marshall Place Associates, which offers a range of strategic thinking tools that open up a universe of new possibilities for individuals and organisations committed to applying the processes of innovation, creativity and entrepreneurship. Colin is also a member of the global Association of Professional Futurists.