Headline inflation went up by 1% in the September quarter. The annual rate is now at 1.3% - a low for the decade. The main upward pressure on the qtly figures came from a whopping 10.2% lift in utility charges. This was the biggest increase in 37 years of records.
Upward pressure also came from petrol, water, sewerage, loan costs and house prices. Downward pressure came from fruit and veg, financial services, electrical goods and pharmaceuticals.
The all important underlying inflation however remains a little stubborn with the 'trimmed mean measure rising 0.8% for the qtr (3,2% annual) and the weighted median also up 0.8% (3.8% annual)
It's likely tat the RBA will continue gradually removing the emergency element from the cash rate by lifting 25 points next week and again in December.
October 29, 2009
October 27, 2009
Producer Prices
The upward pressure on rates may have been taken off for the time-being with Producer Prices being reasonably flat. The real test will be what the underlying inflation numbers show tomorrow.
The broad measure of business inflation – the producer price index (PPI) – rose by just 0.1 per cent in the September quarter. A 7 per cent lift in the Australian dollar led to a 5.1 per cent fall in import prices.
Prices of domestically-produced goods rose by 1.0 per cent driven by higher utility charges.
The prices of materials used by manufacturers plunged by 16 per cent over the past year – the biggest fall in the 40-year history of the series. And real estate agent fees fell by a record 5.9 per cent over the year.
The broad measure of business inflation – the producer price index (PPI) – rose by just 0.1 per cent in the September quarter. A 7 per cent lift in the Australian dollar led to a 5.1 per cent fall in import prices.
Prices of domestically-produced goods rose by 1.0 per cent driven by higher utility charges.
The prices of materials used by manufacturers plunged by 16 per cent over the past year – the biggest fall in the 40-year history of the series. And real estate agent fees fell by a record 5.9 per cent over the year.
China
Figures out of China are showing that the slowdown of the last year will appear as a minor blip in it's stellar period of growth.
The economy is expanding at 8.9% and appears far from being at full steam. The only thing that could slow it would be government measures such as lifting rates. Inflation is yet to take off though.
What it means for Australia is that exports are likely to pick up and should give the RBA some comfort and justification for it's current stance.
The economy is expanding at 8.9% and appears far from being at full steam. The only thing that could slow it would be government measures such as lifting rates. Inflation is yet to take off though.
What it means for Australia is that exports are likely to pick up and should give the RBA some comfort and justification for it's current stance.
October 21, 2009
RBA Minutes
The minutes to the last RBA board meeting were released yesterday. I've included the last three paragraphs below which sum up their thoughts well. The impression I get is that they will continue to tighten for the time being with a move in November and December. We and they won't really have a clear idea however until the next CPI figures are released. Many commentators are suggesting the next move will be 50 basis points. I think however that unless inflation looks like it's staying up, they'll continue with a gradual process of 25 points. This isn't the sort of environment where you want to spook people by delivering a big jump in rates.
Members noted that there was still a possibility that the recent strength in the domestic economy had been largely due to the greater-than-expected impact of the fiscal stimulus, which left open the attendant risk that activity might slow as that stimulus faded. It was also likely that the appreciation of the exchange rate would act as a contractionary influence on activity and help contain inflation. These considerations weighed in favour of keeping the current policy setting for a while longer so as to evaluate further data.
On the other hand, members judged that, compared with previous meetings, the risks in waiting had increased. In particular, underlying inflation was still, on the latest data, above the target and, while current forecasts suggested it would fall in the coming year, the expected trough in inflation was significantly higher than earlier thought. Keeping interest rates at very low levels for an extended period could therefore threaten the achievement of the inflation target over the medium term. More generally, very expansionary policy could result in the build-up of other imbalances in the economy, which would ultimately be detrimental to economic growth.
Overall, members concluded that, while downside risks to the domestic economy could not be ruled out, they had diminished significantly over recent months. This meant that the balance of risks was now such that the current very expansionary setting of policy was no longer necessary, and possibly imprudent. The Board therefore decided in favour of raising the cash rate.
Members noted that there was still a possibility that the recent strength in the domestic economy had been largely due to the greater-than-expected impact of the fiscal stimulus, which left open the attendant risk that activity might slow as that stimulus faded. It was also likely that the appreciation of the exchange rate would act as a contractionary influence on activity and help contain inflation. These considerations weighed in favour of keeping the current policy setting for a while longer so as to evaluate further data.
On the other hand, members judged that, compared with previous meetings, the risks in waiting had increased. In particular, underlying inflation was still, on the latest data, above the target and, while current forecasts suggested it would fall in the coming year, the expected trough in inflation was significantly higher than earlier thought. Keeping interest rates at very low levels for an extended period could therefore threaten the achievement of the inflation target over the medium term. More generally, very expansionary policy could result in the build-up of other imbalances in the economy, which would ultimately be detrimental to economic growth.
Overall, members concluded that, while downside risks to the domestic economy could not be ruled out, they had diminished significantly over recent months. This meant that the balance of risks was now such that the current very expansionary setting of policy was no longer necessary, and possibly imprudent. The Board therefore decided in favour of raising the cash rate.
RBA - THE CONDUCT OF MONETARY POLICY IN CRISIS AND RECOVERY
Governor Steven's delivered a detailed speech yesterday on the operation of monetary policy and the factors that contributed to their dramatic actions of last year and earlier this year. If you want an education on the operation of monetary policy it's actually quite an informative listen ( I chose to listen to his speech rather than read it - a link to this feature is below) The answers to the questions after the speech are just as informative.
The papers and markets have gone into a bit of a spin as a result but personally I don't think he implied anything we didn't already know - that is that it's pretty certain that cash will be 3.75% by Christmas. What they do from Feb is still open to interpretation but you'd have to think there was a good chance we'll see a 4 in front of the cash rate in the new year.
You'll notice from the rate sheet yields have jumped a bit since yesterday. You may see them re-trace some of this exuberance next week.
This link is to listen to it the speech.
http://boardroom-pc.streamguys.us/files/RBA/RBA20091015_GS/
The papers and markets have gone into a bit of a spin as a result but personally I don't think he implied anything we didn't already know - that is that it's pretty certain that cash will be 3.75% by Christmas. What they do from Feb is still open to interpretation but you'd have to think there was a good chance we'll see a 4 in front of the cash rate in the new year.
You'll notice from the rate sheet yields have jumped a bit since yesterday. You may see them re-trace some of this exuberance next week.
This link is to listen to it the speech.
http://boardroom-pc.streamguys.us/files/RBA/RBA20091015_GS/
October 15, 2009
Confidence - 2
The Westpac Melbourne Institute consumer sentiment index came out yesterday showing that consumers were still happy after the rate rise. It leapt 1.7% in Oct to 121.4 points which is the highest since June 2007. It was 119.3 in Sept.
The index may be impacted later in the tightening cycle but not at the initial stages if experience from early 2002 is to be repeated. Household dept to income ratios are higher than then though so the impact of rate rises may start to bite a little earlier. They are now around 155% as opposed to 130% then.
The index may be impacted later in the tightening cycle but not at the initial stages if experience from early 2002 is to be repeated. Household dept to income ratios are higher than then though so the impact of rate rises may start to bite a little earlier. They are now around 155% as opposed to 130% then.
October 14, 2009
Confidence
You may remember that recently NAB had business confidence at 6 year highs which seemed like a ridiculous level given the state of the global economy. I mentioned at that time that the confidence, being subjective, probably related more to the fact that we haven't fallen into a huge hole rather than the future holding the best conditions seen in the last 6 years. NAB's latest Monthly Business Survey came out yesterday showing that confidence was still high but had started to drop back. Forward orders, a more tangible measure, have had a good showing which is reasonably positive for the future.
The key facts are below:
September Survey – Key Results
• Business confidence, after the recent surge, fell 4 points to +14 points in September – albeit still above the longer average level. That reading predated the RBA rate decision last week. The fall was heavily concentrated in manufacturing, wholesale and the retail sectors. The only sector to strengthen was construction (probably infrastructure related).
• Business conditions edged lower – down a point to +3 index points (still a touch below the long run average readings). That reading however reflected more significant falls in trading (down 4 to +8 points) and especially profitability (down 7 to +4 points). The offset was a surprisingly strong reading for employment (up 10 to -1 index points). The readings across industries were again mixed. Manufacturing, finance and mining were strong improvers (no doubt reflecting global developments and local infrastructure demands) while wholesale and transport fell heavily. Construction fell moderately and retail was flat. Overall suggesting softness in cyclical sectors as the stimulus to consumers fades.
• Forward orders rose significantly – up 9 points to an overall reading of +7 points (the highest reading since November 2007). Again however the strength was in mining, manufacturing and construction – with softness in cyclical sectors. Capacity utilisation edged down a point to 79.9% while stocks continued to be run off, albeit less aggressively than recently – with an index of -5 (up from -9).
• Labour costs increased modestly, up 0.5% on a quarterly basis (0.3% last month) with a record low reading of 0.5% in the year to September. Purchase costs, in the face of the stronger AUD, eased further, with the 12 month to rate slowing 2.9% - the lowest since September 2004. Economy wide prices increased by only 0.1% with the 12 month to rate slowing to 1.2% (1.4% previously). Critically, retail price increases have finally also moved sharply lower– down -0.2% in September, the lowest reading since July 1997 and the 12 month to rate slowing to 3.4% (3.8% previously).
• Credit availability eased significantly – with the difficulty in finding finance index easing to 7 points (18 previously). This reflects an easing across all categories. Also there was a sharp jump in those not wanting credit (up 11 to 41%).
The key facts are below:
September Survey – Key Results
• Business confidence, after the recent surge, fell 4 points to +14 points in September – albeit still above the longer average level. That reading predated the RBA rate decision last week. The fall was heavily concentrated in manufacturing, wholesale and the retail sectors. The only sector to strengthen was construction (probably infrastructure related).
• Business conditions edged lower – down a point to +3 index points (still a touch below the long run average readings). That reading however reflected more significant falls in trading (down 4 to +8 points) and especially profitability (down 7 to +4 points). The offset was a surprisingly strong reading for employment (up 10 to -1 index points). The readings across industries were again mixed. Manufacturing, finance and mining were strong improvers (no doubt reflecting global developments and local infrastructure demands) while wholesale and transport fell heavily. Construction fell moderately and retail was flat. Overall suggesting softness in cyclical sectors as the stimulus to consumers fades.
• Forward orders rose significantly – up 9 points to an overall reading of +7 points (the highest reading since November 2007). Again however the strength was in mining, manufacturing and construction – with softness in cyclical sectors. Capacity utilisation edged down a point to 79.9% while stocks continued to be run off, albeit less aggressively than recently – with an index of -5 (up from -9).
• Labour costs increased modestly, up 0.5% on a quarterly basis (0.3% last month) with a record low reading of 0.5% in the year to September. Purchase costs, in the face of the stronger AUD, eased further, with the 12 month to rate slowing 2.9% - the lowest since September 2004. Economy wide prices increased by only 0.1% with the 12 month to rate slowing to 1.2% (1.4% previously). Critically, retail price increases have finally also moved sharply lower– down -0.2% in September, the lowest reading since July 1997 and the 12 month to rate slowing to 3.4% (3.8% previously).
• Credit availability eased significantly – with the difficulty in finding finance index easing to 7 points (18 previously). This reflects an easing across all categories. Also there was a sharp jump in those not wanting credit (up 11 to 41%).
October 13, 2009
Strong Lending
Positive finance figures from August lend support to RBA move. Total new lending commitments (housing, personal, commercial and lease finance) rose by 2.8 per cent in August. In annual terms lending is now up 10.2 per cent on a year ago – marking the best annual growth rate in 19 months.
Personal lending rose by 4.1 per cent in August to be up 15.1 per cent on a year ago – marking the best reading in over two years. Vacant blocks of land continue to be snapped up with sales up 60.1 per cent on a year ago.
The signs are therefore clear that businesses and consumers are starting to borrow again meaning that will flow through into spending soon. Keep an eye on these numbers over the next few months to see if the borrowing stops now that the 3% cash rate bonanza has ended.
Personal lending rose by 4.1 per cent in August to be up 15.1 per cent on a year ago – marking the best reading in over two years. Vacant blocks of land continue to be snapped up with sales up 60.1 per cent on a year ago.
The signs are therefore clear that businesses and consumers are starting to borrow again meaning that will flow through into spending soon. Keep an eye on these numbers over the next few months to see if the borrowing stops now that the 3% cash rate bonanza has ended.
October 09, 2009
Surprises
There continues to be surprises almost every day. Few people expected the RBA to tighten so early and no one expected employment to grow in the midst of such a supposedly deep recession. The market has reacted accordingly and you'll see from the rate sheet that there has been a bit of a jump in rates as people factor in future rate hikes.
October 07, 2009
RBA Tightens
Very simply what the RBA did yesterday was start to wind back some of the 'emergency' element in the cash rate. I don't believe that they believe we are at the cusp of strong growth so once they wind back the 'emergency' element they'll pause for a while. They said as much in their final paragraph (pasted below).
In the statement the RBA acknowledged that the rest of the world will continue to struggle but that growth coming out of Asia, particularly China, will have a significant impact on our region.
They acknowledge that growth in Australia, while stronger than expected, may remain soft:
Economic conditions in Australia have been stronger than expected and measures of confidence have recovered. Some spending has probably been brought forward by the various policy initiatives. As those effects diminish, these areas of demand may soften somewhat. Some types of capital spending are likely to be held back for a while by financing constraints, but it now appears that private investment will not be as weak as earlier expected.
Concluding paragraph:
In late 2008 and early 2009, the cash rate was lowered quickly, to a very low level, in expectation of very weak economic conditions and a recognition that considerable downside risks existed. That basis for such a low interest rate setting has now passed, however. With growth likely to be close to trend over the year ahead, inflation close to target and the risk of serious economic contraction in Australia now having passed, the Board’s view is that it is now prudent to begin gradually lessening the stimulus provided by monetary policy. This will work to increase the sustainability of growth in economic activity and keep inflation consistent with the target over the years ahead.
Rates have moved up a little but much of the tightening was priced in.
In the statement the RBA acknowledged that the rest of the world will continue to struggle but that growth coming out of Asia, particularly China, will have a significant impact on our region.
They acknowledge that growth in Australia, while stronger than expected, may remain soft:
Economic conditions in Australia have been stronger than expected and measures of confidence have recovered. Some spending has probably been brought forward by the various policy initiatives. As those effects diminish, these areas of demand may soften somewhat. Some types of capital spending are likely to be held back for a while by financing constraints, but it now appears that private investment will not be as weak as earlier expected.
Concluding paragraph:
In late 2008 and early 2009, the cash rate was lowered quickly, to a very low level, in expectation of very weak economic conditions and a recognition that considerable downside risks existed. That basis for such a low interest rate setting has now passed, however. With growth likely to be close to trend over the year ahead, inflation close to target and the risk of serious economic contraction in Australia now having passed, the Board’s view is that it is now prudent to begin gradually lessening the stimulus provided by monetary policy. This will work to increase the sustainability of growth in economic activity and keep inflation consistent with the target over the years ahead.
Rates have moved up a little but much of the tightening was priced in.
October 06, 2009
RBA Rates Decision
Yesterday the ANZ job ads data was positive (up 4.4%) indicating the slide in employment may be coming to an end. A number of commentators have taken this, and other recent economic data, to be justification for an RBA rate hike today. The reality is the RBA has to be very sure that it's time to remove the 'emergency' element from the cash rate before it lifts rates. Once it starts, any subsequent drop would be an admittance that they'd made a mistake.
There's no harm in waiting one more month to get a clearer picture on how the economy is holding up after much of the govt. stimulus has run it's course. Given the RBA acted decisively on the way down with bold drops in the cash rate there's no reason why they wouldn't do 50 points in November rather than 25 today and 25 a month later - or even 75 points in the new year.
My 2 cents worth is that there's a slim chance of a raise today, a bit more of a chance of a rise in Nov but a good chance of one after Christmas. Glenn Steven's recent speeches have indicated that a rate rise would come at some point but I didn't get the impression it was imminent. Having said that they don't meet in January so there may be a need to lift them before year end if they don't want to interrupt their holiday.
Given the market has already priced in a number of rises there are now some very attractive deposit rates available.
There's no harm in waiting one more month to get a clearer picture on how the economy is holding up after much of the govt. stimulus has run it's course. Given the RBA acted decisively on the way down with bold drops in the cash rate there's no reason why they wouldn't do 50 points in November rather than 25 today and 25 a month later - or even 75 points in the new year.
My 2 cents worth is that there's a slim chance of a raise today, a bit more of a chance of a rise in Nov but a good chance of one after Christmas. Glenn Steven's recent speeches have indicated that a rate rise would come at some point but I didn't get the impression it was imminent. Having said that they don't meet in January so there may be a need to lift them before year end if they don't want to interrupt their holiday.
Given the market has already priced in a number of rises there are now some very attractive deposit rates available.
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