Wednesday, August 22, 2012

(Sort of) steady as she goes. The RBA minutes

The boost to retail spending flowing from $2.85 billion in government handouts in May and June appears to have ended with the new financial year.

Reserve Bank board minutes released yesterday cite retailers as saying the household bonus payments had a “noticeable effect on sales”.

But The Age understands that at subsequent liaison meetings retailers have told the Bank sales slumped in July as the reality of carbon tax sunk in.

Most of the $2.85 billion delivered to households in May and June was intended to provide early compensation for the carbon tax, but government advertising obscuring its purpose referred to it as “household assistance” and “cash for you”.

Retailers have told the Bank conditions after July 1 were more sombre, suggesting the July retail figures, due in September, will unwind the back-to-back 0.8 and 1.0 per cent retail spending gains seen in May and June.

The board minutes show the Bank relaxed about the price impact of the carbon tax, expecting underlying inflation to climb from around 2 per cent (the bottom of its target band) to 3 per cent (the top of the band) by mid 2013 before sinking back to back to middle of the band as the effects of the tax pass...

The Bank says while the full effects of its four recent rate cuts are yet to become apparent, it sees “tentative signs” of a pick-up in the housing and also a noticeable pick-up in business credit.

It expects resource investment to continue to climb for the next year or so. The “eventual decline” should be roughly offset by a build up in export volumes as projects are completed, and “a gradual strengthening in some parts of the non-resource economy that had been relatively weak”.

It notes “a good deal of uncertainty” surrounding the timing of the forecast shifts.

Deutsche Bank economists Adam Boyton and Phil O’Donaghoe said the Bank was too optimistic in its outlook. Australia’s terms of trade were set to slide 15 per cent throughout 2012. In the past fifty years there had only been five such declines. In three of them Australia had entered recession.

“We don’t wish to overplay these points,” the said in a note to clients. “Our own forecasts look solid. But it seems to us there is complacency surrounding the prospect of a sizeable decline in the terms of trade.”

In today's Age

End of the Investment Book and a 2013 Recession

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