Forklift News - Inflation is more immediate danger for Australia

Australia and the United States of America face significant but different challenges to their economies.

Addressing the American Chamber of Commerce in Australia at a business luncheon in Melbourne last Friday, Glenn Stevens, governor of the Reserve Bank, said for the US, dealing with the fall-out of the financial excesses of earlier years looms large at present.

"This is not made any easier by the simultaneous lift in global commodity prices, which raises consumer prices but, in the US, also dampens economic activity," he said.

"For Australia, the financial fall-out has been less severe, mainly because participation in the earlier excesses was so much smaller, while the very large change in prices for mineral and energy resources is the most expansionary external shock to affect the economy for 50 years or more. It has occurred at a time when the productive capacity of the economy has already been stretched by the long expansion.

"Hence, the prospect of inflation has presented a larger and more immediate danger to Australia than it has, thus far, to the US."

He went on to say that inflation appears to be a bigger problem for much of the emerging world rather than the near or actual recession of the United States, or the credit crunch.

"I would venture a guess, in fact, that the number of countries where inflation is the major problem greatly exceeds, at present, the number where the predominant concern is inadequate growth."

Stevens ended on a positive note. "One way or another, the near term continues to present challenges on both sides of the Pacific, as the two respective economies adjust to the shocks hitting us. But both of these economies are pretty adaptable. There is no reason why, with sensible policy frameworks, competitive and innovative firms, and capable and industrious workforces, they should not continue to prosper over the long term," he concluded.

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