Inflation on the Rise in Australia

123jump.com Staff
24 Oct, 2007
New York City

Australia reported its inflation at the end of the third quarter rose to 1.9% and core rate of inflation increased at a rate of 1%. The report stoked worries that the interest rate may be raised before the end of the year. Australian dollar traded volatile on the report. Rio Tinto reported that nearly 80% of shareholders have tendered the shares in Alcan, aluminum company of Canada. Banks fell on the worries that Merrill Lynch loss may be larger than the previous estimate of $5 billion.

[R]5:00PM Sydney, 3:00AM New York – Australian stocks fell on the subprime lending worries in the U.S. and rising domestic inflation.[/R]

In Sydney trading ASX 200 Index declined by 0.4% or 26.50 to 6,634.40. Rio Tinto declined 1.8% and BHP lost 0.4%. Preliminary stock turnover was 2.08 billion shares worth A$7.5 billion, with 617 stocks up, 626 down and 387 unchanged. Newsat was the most active stock with 96.6 million shares changing hands, BHP Billiton was the most active stock on A$1.1 billion value, and had the largest number of trades totaling 11,265 trades.

Rio Tinto today announced that 298.759 million common shares of Alcan Inc. (which represent approximately 79.41% of the outstanding shares on a fully diluted basis) have been deposited for the offer by Rio Tinto Canada Holding Inc (RTCH).

The company said in a statement that its Canadian-based subsidiary has also received notices of guaranteed delivery covering an additional 21,336,000 Alcan common shares (which represent approximately 5.67% of the outstanding shares on a fully diluted basis).
It added that all of the conditions of the take-over offer have been satisfied and the initial offering period, which was extended until October 23, 2007, is now closed for acceptance.

Since RTCH has taken up all the Alcan shares deposited under the Offer, these shares may no longer be withdrawn. Payment for the deposited shares will be made to the depository on October 25, 2007.

RTCH has in the meantime extended the Offer until 6:00 P.M. (Canadian Eastern Time) on November 8, 2007 by commencing a subsequent offering period (the ""Subsequent Offering Period"") to allow those Alcan shareholders who have not already deposited their shares under the Offer the chance to do so. They will receive U.S.$101 per share as was offered during the initial offering period.

Rio Tinto''s chairman, Paul Skinner said: ""We have been working towards our offer for Alcan becoming unconditional and have now passed the final milestone, with more than two thirds of Alcan shareholders having tendered their shares.""

If RTCH acquires more than 90% of the Alcan shares, upon expiry of the Offer, it intends to acquire all shares it does not then own by way of statutory compulsory acquisition pursuant to the Canada Business Corporations Act.

Australian Bureau of Statistics reported CPI index, a measure of inflation, during the quarter ending in September 2007 rose 0.7% compared to 1.2% increase in the second quarter ending in June 2007. For the year to September 2007 the CPI increased 1.9%. The inflation number declined in the quarter because government deducted the child care payment from the inflation calculation.

As a result it was considered to be part of the tax system and therefore not included in the CPI but from the current financial year the CCTR is payable regardless of the family''s tax liability, taking it out of the income tax system, meaning it is now included in the cost of child care.

Child care makes up only a third of 1% of the CPI, but such large moves in even a small component can have an effect on the bottom line.

While the CPI rose by 0.7% overall, excluding child care costs the quarterly rise would have been 0.9%.

Housing, healthcare, and education costs increases were the largest contributors to the inflation index in the last twelve months. In the last quarter food, services, and housing added to the inflation pressures.

The Australian dollar broke through the $0.9000 mark following the release of stronger-than-expected inflation numbers, which boost the chances of a rise in interest rates.

The Australian dollar fetched U.S.$0.9027/29, up from yesterday''s close of U.S.$0.8912/15.

Of the ASX 200 index shares, Paladin Resource led the gainers with a rise of 4.2% followed by increases in Sonic Health Care by 3.4%, in Jubilee Mines NL by 3.2%, in Transfield Services by 3.1%, and in Straits Res Limited by 2.9%.

Of the ASX 200 index stocks, Perilya led the decliners with a fall of 3.9% followed by losses in AWB Limited of 4.4%, Bluescope Steel of 4.5%, Ones Steel Limited on 7.9% and AED Oil Ltd of 9.5%.

In general marker trading banks declined led by a fall of 2.3% in Macquarie Bank Ltd on the New York Times report that Merrill Lynch & Co. will probably add about $2.5 billion more in write-downs to the previous estimate of $5 billion losses. After the close, in regular trading Merrill Lynch fell 7% after reporting a subprime loan trading loss of $8.5 billion.

The Commonwealth Bank of Australia was 0.6% lower after the worries that higher inflation may lead higher rates.

The National Australia Bank Ltd was down 0.2% and the Australia & New Zealand Banking Group Ltd was 0.3% lower.

Woodside Petroleum climbed 0.6%, Santos added 1.1% and Oil Search advanced 1.8%.

Virgin Blue, which today announced a positive outlook for the current financial year, added 4.1%. In other aviation stocks, Qantas Airways lifted 1.4% while Macquarie Airports fell 2.2% on speculation that the company may purchase international assets.