Headline inflation at weakest annual pace in 17 years


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The consumer price index (CPI) rose by 0.4% in the June quarter and 1% year on year, the slowest pace seen in 17 years. The annual core inflation rate fell from 1.4% to 1.3% as a result of low wages growth, a weak global economy and reduced pricing power by retailers due to entry of competitors. Slow inflation has caused the market to speculate on a 52% chance of the RBA cutting the cash rate.

How does this relate to the HSC syllabus?

  • An increase in the CPI by 0.4% is an increase in price levels that indicates headline inflation of 0.4% (HSC Topic 3 – Economic Issues). Headline inflation takes into account all items in the economy, goods with volatile prices such as fuel which significantly influence inflation.
  • The more stable measure of inflation, core inflation, which removes the effect of goods with volatile prices, fell by 0.1% year on year (HSC Topic 3 – Economic Issues). This is beneath the 2% - 3% inflation range for the RBA, which provides further reason for the market to believe that the RBA will cut the cash rate to stimulate the economy and boost inflation (HSC Topic 4 – Economic Management and Policies).
  • A reduction in wage growth was a substantial reason for weak inflation figures. Slow wage growth is reflective of slowing productivity in the labour market which reduces employer willingness to pay higher wages.

Glencore backs ACCC’s Rod Sims on monopoly privatisation


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The ACCC has argued against the privatisation of public monopolies. Although previous cases of privatisation such as Qantas, Commonwealth Bank and Telstra have been beneficial to the public, privatising infrastructure monopolies are argued to be detrimental to consumers as they can charge higher prices to maximise profit. It has been alleged that the focus on the sale of public assets is motivated by the desire to raise capital to repair government balance sheets rather than contemplating the long term economic consequences to privatising monopolies.

How does this relate to the HSC syllabus?

  • Privatisation involves the public sector selling their assets to the private sector (Preliminary Topic 6 – Government and the Economy). In general, privatisation is beneficial for the economy and for consumers as the company’s focus shifts from serving the interests of the government to maximising returns by becoming competitive and increasing their margins by reducing costs and increasing prices. Examples of successful privatisations include Qantas and Commonwealth Bank.
  • Privatisation is beneficial for the government in the short term as it earns money from the sale of the assets. These funds can help repair the government’s balance sheet which has suffered as a result of significant expenditure during the GFC.
  • The ACCC argues, however, that privatising monopolies would be to the detriment of consumers. Privatisation of Commonwealth Bank and Qantas were relatively successful as they faced competition which forced these two companies to become more competitive by lowering prices and lowering costs (Preliminary Topic 3 – Markets). This benefitted consumers since it entailed lower prices while having greater consumer choice. However, the proposed privatisations now, including Australian Rail Track Corporation, are monopolies. Privatising a monopoly would see those monopolies extracting higher prices from consumers to further increase their profit margins since they do not need to compete with other companies.
  • Privatising a monopoly would be more favourable to the government since the high future cash flows that the monopoly would generate as a result of imposing high prices translates into a higher price for the company in the present which will flow to the government.

Investors hope Woolworths is shrinking to greatness


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Woolworths has suffered significant losses over the past few years which has seen its market value decline by 40% over the last two years. While some initiatives such as investment into lowering grocery prices have been relatively successful, other ventures such as Big W have been a drag on profits. The new CEO, Brad Banducci has begun to restructure the company including shedding 1100 jobs, reducing the number of new stores and selling the EziBuy business. Restructuring could see Woolworths revert to being a pure-play food and liquor retailer.

How does this relate to the HSC syllabus?

  • Woolworth’s strategy involves reducing the range of goods and services it produces (Preliminary Topic 2 – Consumers and Business). Previously, Woolworths endeavoured to expand its portfolio of offerings. This included ventures such as Big W and Masters which have been loss generating businesses for Woolworths.
  • Weak performance from Big W and Masters, among other ventures, has generated losses for Woolworths, resulting in a reduction in the price of their shares which does not meet shareholder expectations (Preliminary Topic 2 – Consumers and Business). More fundamentally, Woolworths was not maximising profits as any gains from the food and liquor business was supporting Big W and Masters which inhibited growth.
  • Reducing focus from the food and liquor business to strengthen Big W and Masters also caused competitors such as Coles and Aldi to outperform Woolworths in the food and liquor segment, causing it to lose market share. Reversion to a pure play food and liquor retailer would enable Woolworths to concentrate all of its resources to increasing the competitiveness of its business and regain market share.

Theresa Dang THERESA DANG

Theresa Dang is an economics mentor at Keystone Education. She attended Sydney Girls High and achieved an ATAR of 99.70 in 2012. She is now studying Commerce and Law at the University of Sydney. She has experience in a global technology firm and a mutual fund.

Gary Liang GARY LIANG

Gary Liang is the founder and director of Keystone Education. He attended Sydney Boys High and achieved an ATAR of 99.95 in 2012. He achieved 5 state ranks in Mathematics, Mathematics Ext 1, Mathematics Ext 2, Chemistry and Economics. He is now studying Economics and Science (Advanced Mathematics) at the UNSW Australia, where he is the recipient of four scholarships.

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