Rise in inflation, jobless expected

Press, 23 February 1989, Page 35

Rise in inflation, jobless expected

By

OLIVER RIDDELL

and Press Association

A slight rise in inflation and a rise in the numbers of jobless are among the expectations of business and finance executives surveyed in the Reserve Bank’s latest quarterly survey. The bank said survey respondents expected annual inflation to decline to 4.1 per cent for the March quarter but then rise to 4.7 per cent for the June quarter. Actual inflation, as measured by the Consumers Price Index, was 4.7 per cent over 1988.

The bank’s March quarter survey, of 207 executives, was conducted on February 8. The bank said no further reductions in annual inflation were expected over the next two years with a rate of 4.8 per cent foreseen for 1989 and one of 4.9 per cent for 1990.

“This represents a slight increase in long term inflation rate expectations over the December quarter survey,” it said.

Expectations of quarterly inflation in the present three months rose slightly above those recorded in the previous survey. The CPI was expected to rise 1.2 per cent in the March quarter and 1.3 per cent in the June quarter. The survey also found that expectations for a decline in interest rates over the year ahead were less than in the December quarter survey. Further declines were also expected in exchange rates except in the cross rate against the Australian dollar. The latter was expected to firm slightly in the year ahead.

The Reserve Bank’s trade weighted index was, however, expected to depreciate 1.2 per cent through the March quarter, and a further 0.5 per cent in the three months after. The outlook on gross domestic product

picked up, with a rise of 0.1 per cent foreseen in the present quarter. The December quarter was still seen as one of contraction, with a 0.2 per cent fall in GDP.

The survey found a general expectation of growth of 0.4 per cent in 1989. Survey respondents expected the number of unemployed registered with the Labour Department to rise to 161,000 by March but then slow and reach 169,000 by the end of the year. The survey of 207 top finance and business people found that monetary conditions were expected to be tight, but less rigidly tight than in the survey for the December quarter. Respondents had higher inflation expectations than before, but still expected the level to stay below 5 per cent. There was little change in expectations for long-term interest rates. Further declines in the exchange rate were expected in both the short-term and medium-term.

Little growth in real gross domestic product was expected over the next 12 months.

A fall of 0.2 per cent had been expected for the December quarter and a rise of 0.1 per cent was anticipated over the March quarter, with over-all growth in real gross domestic product of 0.4 per cent expected for the 1989 calendar year. Expectations remained for a substantially improved current account balance but there was a further fall in confidence that the Government could achieve Table 2 Budget surpluses in the next two financial years. Average wages rates were expected to rise by 4.3 per cent in the 1989 calendar year. This was down on the 4.7 per cent expected in the last survey.