Wednesday, August 04, 2010

Why are interest rates steady? We're "roaming malls sleepwalking"


Price Pressure?

In the three months to June

Food and liquor + 1.2%
Household goods - 1.0%
Clothes and shoes - 1.6%
Department stores - 0.8%

Total retail prices + 0.1%


ABS 8501.0


The Reserve Bank has delivered the Gillard government a lower interest rate than it gave the Coalition in almost all of its eleven years in office.

But in leaving the cash rate steady at 4.5 per cent yesterday the Reserve Bank board was bowing to weakness rather than strength in the Australian economy.

Retail figures released as the board met in Sydney showed inflation close to nonexistent in malls and supermarkets with the quarterly increase a mere 0.1 per cent and the increase in the year to June just 0.4 per cent.

Prices fell in 7 of the 15 categories monitored by the Bureau of Statistics. The biggest fall was in clothes and shoe prices, down 1.6 per cent in the quarter, offsetting a 1.2 per cent rise in the price of food and liquor.

Spending climbed just 0.2 in June and 0.8 per cent over the quarter.

"Shoppers are roaming malls sleepwalking," said Commonwealth Bank economist John Peters. Employment is growing but spending is soft."

The Bank's announcement that it would keep rates on hold said they were at close to average levels, economic growth was likely to be close to trend, inflation close to target and the global outlook uncertain...
Unusually the statement said nothing about keeping rates under review, implying that the board is happy to leave them steady for some time.

But it believes that when it does come, the next move is more likely to be up than down and will be watching employment, economic growth and inflation to get a unified picture.

Building approvals fell for the fifth time in six months, slipping a further 3.3 per cent in June as economic stimulus programs wound down.

Approvals to build private houses are slipping at a trend rate of 2.2 per cent per month. Victoria still builds the lion's share of Australia's houses, giving the go-ahead to 3000 new homes in June compared to 1400 in NSW.

"These should spell a sustained period of steady interest rates," said Housing Industry Association economist Harley Dale. "

"It also highlights the urgent need for further reform to reduce obstacles to boosting supply.
In much of Australia new hosues are at a clear disadvantage due to planning delays, infrastructure charges, lack of available finance, and a range of costs now borne new home buyers."
Separately released Reserve Bank figures highlighted the risk of a two-speed economy showing commodity prices approaching their previous all-time high.

The Bank's commodity price index climbed a further 2.7 per cent in July after rising 2.2 per cent in June due mainly to higher prices for iron ore and coal. The price of wheat also rose, while the price of gold fell. In the past year the index has climbed 51 per cent.

The Bank will unveil a new set of quarterly economic forecasts on Friday setting the scene for Monday's Press Club debate between the Treasurer Wayne Swan and Coalition Treasury spokesman Joe Hockey.

Opposition leader Tony Abbott confirmed Tuesday that if he was elected Mr Hockey would become Treasurer and Andrew Robb Finance Minister.

Published in today's SMH and Age.
Photo: Charlie Brewer



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8501.0 8731.0 RBACPI, RBARATES