Headwinds ahead as market watchers worry

Lower inflation numbers in the US this week give hope that price pressure is slowing, according to Pitcher Partners executive director Christian Golding.

The world’s biggest economy posted inflation at 6.5 per cent over the 12 months to December, according to the latest data from the US Bureau of Labor Statistics.

Falling energy prices were a big contributor to the improved figures, which had been near 40-year highs for much of 2022.

The US Federal Reserve moved more rapidly than the Reserve Bank of Australia to stop inflation, with successive rate hikes of as much as 75 basis points.

The federal funds rate is now set between 4.25 per cent and 4.5 per cent.

Australia’s inflation data was less promising this week, with monthly figures from November showing it had returned to its multi-decade peak of 7.3 per cent.

“[M]any businesses are being challenged by the impact of input cost inflation,” Mr Golding said.

“This said, the inflationary numbers released on Thursday night in the US show inflation pressures are easing along with continuing supply chain recovery, however they remain well above the US Federal Reserve’s target.

“To rein-in inflation, central banks around the world, including the Reserve Bank of Australia, are being forced to put up interest rates, targeting demand to slow the economy.

“Unfortunately, the use of monetary policy can be a bit of a blunt instrument because while increasing rates can help temper inflation, pushing too far can put the economy into recession.

“It’s certainly a difficult balancing act for central banks to reduce inflation without collateral damage to the economy, or in other words to manufacture a soft landing.”

But while Western Australia would be hit by any global slowdown, there was reason for optimism.

The reopening of China’s economy, and demand for green energy, meant WA was well-positioned to ride through the storm, he said.

“There may also be a silver lining for WA business if a severe slump can be avoided, as a mild economic slowdown may take some of the heat out of a tight employment market that has hamstrung many local businesses,” Mr Golding said.

It comes as nearly 70 per cent of respondents to a survey by professional services network Baker Tilly International feel the economic outlook is negative for 2023.

The survey collected insights from the heads of firms in the network around the world, including Pitcher Partners, with 68 respondents.

Inflation was a top concern, with roughly half of respondents concerned by rising inflation, either in goods and services markets or wages.

About 49 per cent of respondents believed the equities market in the US would end the year in the red, with only a third expecting stocks would lift.