Can Australia Cope with the Impact of This Summer’s Natural Disasters?

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Inflation expectations are increasing around the world after China’s central bank raised interest rates by 0.25% on 9 February, and in January UK food prices rose at the fastest pace in 19 months. This came in a report from Aliom, an Australian Stock Investment Group affiliated broker, when looking at the issue of global inflation.

With industry worth $400 million, a total of 75 percent has been affected

February 17, 2011 -- But, The ASIGroup wants to know how this will affect working Australians, especially after the natural disasters experienced this summer.

At the beginning of the year, the Australian Bureau of Statistics (ABS) released projections for 2011, which showed that the cost of living for Australians is expected to rise dramatically this year. However, this data was put together before the January floods, Cyclone Yasi that hit Northern Queensland and the floods in Victoria earlier this month.

The ABS estimated that the average family of four would face increased costs of about $100 per week, with the cost of food expected to potentially soar 34%, and the rise of utilities from previous years expected to carry on in 2011. However, analysts believe the actual rise of food may be far greater than initially expected.

On Friday the 4th of February, the central bank released their quarterly monetary statement, only days after Cyclone Yasi hit. This report provided an initial assessment of the impact of the floods, and showed that inflation is expected to be lifted by a quarter of a percentage point in the March quarter, through higher fruit and vegetable prices. The Treasury expects that, after the cyclone, a further quarter percentage point will be added to inflation on top of this.

The financial market is expecting another two interest rate increases this year, but the central bank believes that these are short-term effects, and they will “look through” the national disasters when setting the interest rates. But, Queensland’s top exporting industries don’t seem to agree, and they feel it could take months, or even years for them to recover fully from the impact of the floods and the cyclone.

According to Aliom, Cyclone Yasi significantly damaged Queensland’s sugar crop, and as a result, the output in the region could be cut by 50%. North of Townsville, half of their sugar cane crops were destroyed, equalling 1/6th of Australia’s total output. Steve Greenwood, chief executive of Canegrowers, believes that the sugar cane industry could take up to three years to return to its normal production cycle, and that consumers could expect prices to rise in the region of the 500% inflation experienced after Cyclone Larry.

The banana industry has also been severely damaged. According to the Chairman of the Australian Banana Grower’s Council, Cameron MacKay, banana growers across Far North Queensland, in particular Innisfail and Tully, have been the worst hit by the cyclone. “With industry worth $400 million, a total of 75 percent has been affected,” said MacKay. “The majority of Australian bananas are grown in tropical north Queensland, so this is a fairly significant disaster for our industry.”

The coal industry has taken a huge hit too, with some mines ceasing production entirely to clean up flood damage and pump water out of open mines. Spot coal prices have already risen, and experts predict that contract prices will also rise. In the January 2008 floods, prices tripled to reach $300 a tonne, and more damage was caused in the 2011 floods. It is believed that up to 30 million tonnes of production may have been lost over the first two months of this year.

These figures indicate that the impact may be more than the “temporary” effects indicated by the Treasury. The ASIGroup believes that whether they are short-term or long-term effects, the price of fruit, vegetables and utilities are likely to increase, and this will have a big impact on the average Australian family.

A recent survey by the Suncorp Life Confidence Index showed that 3.7 million Australians would be unable to cope with this expected rise in the cost of living. This index measures the ability of people to cope with job losses and the rises in the cost of housing, petrol, electricity and essential living expenses. The survey showed that 1 in 4 Australians are worried that they will not be able to manage the expected rises, as their current budgets do not have any room for increases.

The ASIGroup is an Australian owned company that provides information and research for some of Australia's leading stock brokerage firms, financial information providers and general trading advisors. These companies are located throughout Australia's capital cities and are widely considered the best services available in Australia today. The ASIGroup provides information on all types of stock market trading including shares, CFD’s, futures, futures and options.

Marketing Manager
The ASIGroup
61 7 5562 9100


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