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The inflation rate
Inflation, as measured by the Consumer Price Index, was flat in the December quarter. The decline in fruit and vegetable prices (down 13.4% and 5% respectively) contributed significantly to the surprisingly flat result. Vegetable prices have fallen for three consecutive quarters following the sharp rises at the beginning of 2011 - a consequence of the floods in Queensland and Victoria.
The media made much of the spike in vegetable prices in the early months of 2011, but as AUSVEG continually pointed out, vegetable growers were quickly restoring production and supplies to the market, despite the extreme hardship that many faced.
The restoration has in fact been so complete that prices in the December quarter 2011 were lower than they were in the December quarter of the previous year.
All eyes on the Reserve Bank of Australia
According to financial markets and almost all economists, the low inflation result means that an official interest rate cut next Tuesday is all but done. An interest rate cut would boost confidence, ease upward pressure on the Australian dollar and assist struggling domestic industries such as retail, manufacturing and tourism.
However, the decision to cut the official interest rate, and by how much, will not be as easy as some pundits are suggesting. The banks have recently been softening the public up for a break in the link between movements in the official interest rate and the interest rates they charge on their home mortgage loans.
As vegetable growers would be aware, official cuts in interest rates do not automatically flow on to a reduction in business overdraft interest rates. The banks are facing increasing funding costs on money they borrow from overseas, so while there will be a political explosion if they decide not to pass the full cut on to home mortgages, now is as good a time as ever to break the nexus.
A cut in interest rates may not have the confidence boosting impact on consumers that may be hoped for if the full amount is not passed on. The Reserve Bank of Australia may decide that a cut of greater than the normal 0.25% is required, or they may decide to call the banks' bluff and hold fire, keeping their ammunition in case global economic conditions worsen. Nevertheless, if you were a punter, you would go with a 0.25% cut.
Carrots to Taiwan
If vegetable growers ever needed to be reminded of how slow it is to solve international biosecurity issues, they need look no closer than the long drawn out process of restoring the carrot export trade to Taiwan. A huge amount of work has gone into reopening the Taiwanese market for carrots from DAFF Biosecurity, state DPI's and carrot growers.
The proposed restoration of the carrot trade is a good news story. The latest from Taiwan is that there is no longer a need to certify freedom from potato rot nematode. In regard to pest free places from burrowing nematode, Taiwanese officials will conduct an annual audit of Australian carrot farms for the first two years before passing responsibility for the audit back to DAFF. The next step will be the development of an operational work plan with DAFF Biosecurity, in collaboration with the state departments and industry, for registering, soil surveying and timing of auditing by the Taiwanese inspector.
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