The traditional post-Christmas spending slump is set to be quashed by heavy discounting tactics with selling price expectations sliding to 24-year lows.
According to the latest data from Dun & Bradstreet's National Business Expectations Survey, price expectations have fallen to their lowest level since the survey began in 1988.
“We know that there is traditionally a drop off in spending following the Christmas period as consumers play catch-up with their household budgets and debts following an often expensive holiday period,” says Dun & Bradstreet’s Director of Corporate Affairs, Danielle Woods.
But prices are likely to be even lower than anticipated, with actual selling prices tracking below the expectations of business executives for 10 consecutive quarters, suggesting their businesses are facing an ongoing demand for discounts by customers.
Compounding the challenging pricing environment is that businesses are also anticipating reduced activity with both sales and inventory levels pulling back sharply from the previous quarter’s expectations.
“These findings suggest that businesses are planning to negotiate the spending slump by extending discounting through the New Year and by managing their stock carefully,” says Woods.
“Although the most recent data has taken selling price expectations to a new low, it is part of a long downward trend that suggests ongoing discounting has become the new normal.”
Interestingly, profit expectation is the only indicator to have increased, rising for the second consecutive quarter suggesting Australian businesses are optimistic that their adjustments to selling prices and expenses will pay off.
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Economist Stephen Koukoulas highlights the fall in selling prices as a reason why the RBA is on track to cut interest rates early in 2013.
“The sharp fall in expected selling prices points to very low inflation outcomes for both the December and March quarters,” Koukoulas says.
“Consequently, it remains likely that the inflation rate will remain near the bottom of the RBA target band, which will be a critical issue for the RBA when it decides future interest rate settings.”
“The Business Expectations Survey also shows softer activity, with sales weakening and employment conditions remaining flat. The economy is clearly in a temporary lull with the key question as we move into 2013: is monetary policy sufficiently easing to spark stronger activity through the year?” Koukoulas added.
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