Inflation stays high, but struggling manufacturing sector highlights need for rate cut: Economy roundup

This morning’s monthly inflation gauge from TD Securities and the Melbourne Institute showed a 0.1% rise in August, after a 0.4% increase in July.

That inflation genie just won’t get back in the bottle.

This morning’s monthly inflation gauge from TD Securities and the Melbourne Institute showed a 0.1% rise in August, after a 0.4% increase in July.

However, if the impact of the June to August fall in petrol prices is removed, the gauge climbed 0.6% for August, equalling the record monthly rise for the series.

Joshua Williamson, a senior economist at TD Securities, says: “Inflation remains stubbornly high with the monthly gauge being a shock once account is taken of the obvious fall in petrol prices.”

While high inflation is clearly a concern for the Reserve Bank board, which meets to discuss a rate cut tomorrow, the latest data from the manufacturing sector reinforces the case for a rate cut of 0.25%.

Australian manufacturing activity contracted for a third straight month in August, with the Australian Industry Group/PricewaterhouseCoopers Performance of Manufacturing Index rising just 0.1 points to 47, remaining below the key 50 threshold separating growth from contraction.

Manufacturers are being buffeted by rising input costs – particularly steel – and falling demand as consumer and business confidence drops.

The local sharemarket has eased slightly this morning after a sharp decline on Wall Street on Friday night.

The Dow Jones industrial average closed down 171.63 points, or 1.47% to 11,543.55 in Friday’s trading, after technology giant Dell warned that its customers were cutting back on spending as the economy slows. US markets are also nervous about the impact of Hurricane Gustav, which currently threatens parts of the US coastline.

In Australia, the benchmark S&P/ASX200 index was down 29.5 points or 0.6% to 5106.1 points at noon AEST. The index gained 1.4% on Friday.