The domestic economy

• Underlying retail price inflation has been rising since early 1988, and although recently wholesale price rises have been contained by market pressure, oil price rises may not yet have fully fed through.
• Consumption growth continues to slow, and saving to recover, as the personal sector adjusts to slower real income growth and higher interest rates.
• Profitability is now falling and the company sector deficit mounting, bringing more pressure for adjustment there; the sooner unit labour costs are contained the less will be the longer-term damage to corporate prospects.
• The trade account continues to improve as domestic demand and supply come into better balance. But deteriorating competitiveness, and prospective weakening of demand abroad as a result of the Gulf crisis, emphasise the importance of this balance being maintained.

The domestic economy