Petrol hits 25-month high; Consumers slash debt

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Credit/debit cards; Weekly petrol; Lending finance

  • Petrol prices to lift further. The terminal gate or wholesale price of petrol rose by another 3 cents a litre last week to 25-month highs. Over the past fortnight wholesale petrol prices have lifted 6.5 cents but the pump price has so far only risen by around 3.5 cents.
  • Credit card balances fell in October. The average credit card balance stood at a $3,244.80 in October, down $17.10 on September. The average credit card balance has been slashed by $39 in the past four months – the biggest fall in 15 years apart from the GFC period in early 2009.
  • Consumers shun credit cards. Purchases on credit cards fell 2.9 per cent in October but purchases on debit cards rose 2.7 per cent in the month.
  • Lending rose in October, ahead of the RBA rate hike. Total lending finance rose by 3.7 per cent in October, with all but personal finance advancing.

What does it all mean?

  • Perhaps it is a Christmas present from the oil companies, but so far prices at the petrol pump have nowhere matched the lift in the wholesale (terminal gate prices). Since the lows in early October, the wholesale price has increased almost 11 cents a litre while the pump price has gained around 6 cents. Even over the past fortnight the pump price has only recorded half the gain at the refinery terminal.
  • Oil companies had been lifting margins for some time, so perhaps competitive forces are working to give something back to motorists. In 2009 the difference between the terminal gate and pump price was 7.3 cents and in 2010 it was 7.9 cents. In the latest week the difference was 6.7 cents a litre.
  • The bad news for motorists is that the petrol price probably will lift another 3-5 cents a litre by Christmas. While the Singapore gasoline price actually eased in Australian dollar terms last week, the Australian wholesale price hasn’t peaked and motorists have so far been spared from the higher prices.
  • The monthly cost of filling up the petrol tank will probably reach $187 in late December, up $20 from mid September. Effectively this has the same effect as a quarter per cent rate hike on a $120,000 mortgage.
  • Consumer conservatism was on show for all to see in the latest credit card figures. Aussie consumers reduced outstanding balances on credit cards and increasingly used their own money (debit cards) to make purchases rather than put them on credit. The point to note is that the changes preceded the Reserve Bank rate hike in November.
  • The news for retailers isn’t good. The price of petrol is going up, acting like a de facto rate hike. At the same time consumers have slashed credit card debt by the most since the GFC.

What do the figures show?

Credit & debit card activity:

  • Figures released from the Reserve Bank show that the average credit card balance stood at $3,244.80 in October, down $17.10 on September. The average credit card balance is up 3.3 per cent on a year earlier the slowest annual growth in eight months. Over the past four month, the average credit card balance has been slashed by $39.10. Apart from the GFC period in early 2009 this is the biggest reduction in credit card debt for over 15 years.
  • Of credit cards attracting interest charges, the average outstanding balance fell by $35.50 in October after falling by $11.50 in September. The average balance accruing interest stands at $2349.80, up 4.3 per cent on a year ago (slowest growth in eight months) and up 4.2 per cent on a “smoothed” basis.
  • The number of credit card cash advances fell by 3.1 per cent in October and was down 8.8 per cent on a year earlier. Credit card advances have been largely falling in annual terms for around four years.
  • The number of purchases made on credit cards fell by 2.9 per cent in October after falling 0.8 per cent in September. Purchases made on credit cards were just 2.0 per cent higher than a year earlier, the slowest growth in a year.
  • The number of purchases made on debit cards rose by 2.7 per cent in October to stand 17.1 per cent higher than a year ago.
  • The number of just EFTPOS transactions in October (excludes cash out) rose by 2.7 per cent to stand 18.6 per cent higher than a year ago.
  • Cash withdrawn from ATMs in October continued to fall in annual terms. The number of cash withdrawals was down 1.6 per cent on a year ago while the value of withdrawals fell by 2.6 per cent.

Petrol prices:

  • According to the Australian Institute of Petroleum, the national average Australian price of unleaded petrol rose by 2.9 cents per litre to 128.6 cents a litre in the week to December 12. The metropolitan price rose by 2.6c/l to 128.6c/l, while the regional average price rose by 3.4c/l to 128.6c/l.
  • Petrol prices across states in the past week were: Sydney (up 2.6 cents to 128.0c/l), Melbourne (up 2.8 cents to 128.6c/l), Brisbane (up 2.2 cents to 130.5c/l), Adelaide (up 3.4 cents to 128.6c/l), Perth (up 2.2 cents to 127.3c/l), Darwin (up 3.2 cents to 130.8 c/l), Canberra (up 2.5 cents to 129.4c/l) and Hobart (up 3.7 cents to 133.5c/l).
  • The national average wholesale (terminal gate) price today hit a 25-month low high of 123.4 cents a litre, up 3 cents over the week. Just over two months ago (October 1) the terminal gate price stood at an 11-month low of 111.6c/l.
  • Last week, the key Singapore unleaded petrol price rose by US32c (0.3 per cent) to a 25-month high of US$101.60 a barrel. But in Australian dollar terms the Singapore gasoline price fell by 68c (0.7 per cent) over the week to $103.12 a barrel.

Lending Finance:

  • Total new lending commitments (housing, personal, commercial and lease finance) rose by 3.7 per cent in October after rising 2.3 per cent in September and falling 5.5 per cent in August. Lending totalled $52.2 billion in October, up 2.2 per cent over the year but up only 0.3 per cent in the past three months.
  • All housing finance (owner occupier & commercial) rose by 2.8 per cent in October, the fourth straight gain but ahead of the Reserve Bank rate hike in November. However of note, loans for the construction of dwellings (investor and owner-occupier) fell by 2.9 per cent in October to be down 24.9 per cent over the year.
  • Commercial finance rose by 5.2 per cent in October. Within commercial commitments, fixed lending rose by just 0.3 per cent but revolving credit soared by 17.4 per cent. Commercial loans are up 12.3 per cent on a year ago.
  • Personal finance fell by 0.4 per cent in October, the third fall in four months. Within personal commitments, fixed lending rose by 1.9 per cent while revolving credit fell by 2.5 per cent. Personal loans are up 7.9 per cent on a year ago.
  • Within fixed lending, all categories are higher than a year ago except refinancing (down 1.1 per cent) and residential blocks of land (down 32.9 per cent).
  • Lease finance rose by 3.1 per cent in October and loans are up 9.5 per cent over the year.

What is the importance of the economic data?

  • The Reserve Bank releases data on credit and debit card transactions each month. The credit card figures are useful in highlighting consumer borrowing and spending trends.
  • Weekly figures on petrol prices are compiled by ORIMA Research on behalf of the Australian Institute of Petroleum. National average retail prices are calculated as the weighted average of each State/Territory’s
    metropolitan and non-metropolitan retail petrol prices, with the weights based on the number of registered petrol vehicles in each of these regions.
  • Lending Finance is released monthly by the Bureau of Statistics and contains figures on new housing, personal, commercial and lease finance commitments. The importance of the data lies in what it reveals about the appropriateness of interest rate settings, confidence and spending levels in the economy.

What are the implications for interest rates and investors?

  • There is no let up for retailers. Petrol prices are rising and consumers are spending warily. Retailers will need to keep discounting in order to get people to part with their cash.
  • The Reserve Bank believes consumer conservatism will continue for some time yet – and based on current evidence, it looks like being right. The longer this new era of conservatism continues, the longer the Reserve Bank can stay on the sidelines.
  • The latest data on construction lending and lending to buy blocks of land further points to slower home building activity ahead.

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