• Motorists need to prepare for higher petrol prices. The terminal gate or wholesale price of petrol leapt by over 3 cents a litre last week to 5-month highs. In addition the Singapore gasoline price soared 7 per cent last week to 25-month highs. CommSec expects petrol prices to rise 5 cents a litre by Christmas.
• Inflation is under control. The TD Securities-Melbourne Institute monthly inflation gauge rose by 0.4 per cent in November, but boosted by volatile elements like fruit and vegetable prices. Excluding volatile items, prices rose just 0.1 per cent – the fourth straight month of negligible growth.
• The job market is losing steam. The Advantage internet job index rose by 3.4 per cent in November but the number of job ads declined week by week in the month. The ANZ index of job ads rose by 2.9 per cent.

What does it all mean?

• Motorists need to prepare for higher petrol prices over the next fortnight. The wholesale price of petrol leapt by almost three cents a litre last week and more than likely the higher cost will be passed through to motorists over the next 7-10 days.
• While the natural tendency is to complain about oil companies, the simple fact is that Asian gasoline prices have lifted by A$13 a barrel, equating to 13 cents a litre, while the wholesale petrol price in Australia has lifted by 9 cents a litre from the lows. But the pump price has only risen – at this stage anyhow – by just 3 cents a litre. The risk is that prices could lift by 5 cents a litre by Christmas – and you can’t blame oil companies or service station operators – at least not this time.
• The bad news is that global oil prices have hit 2-year highs in response to cold weather in the Northern Hemisphere and a weaker US dollar. But the good news is that the Aussie dollar rebounded late last week, serving to offset some of the effects of higher global oil prices.
• The headline rate of inflation could rise further in coming months, boosted by the price of petrol. But more important is what is happening beneath the surface. At this stage underlying inflation is under control. Strip out volatile elements like fruit and vegetable prices and petrol and inflation is largely non-existent in Australia. But that is no surprise – retailers of all descriptions have been telling that is the case for some time. In the current environment businesses are trimming prices to get people to part with their cash, but with varying degrees of success.
• Once volatile items are excluded, the three month annualised rate of inflation is amazingly just 0.7 per cent. However the inflation gauge reveals that the headline rate of inflation is closer to 4 per cent. Clearly there is not a lot that the Reserve Bank can do about changes at the petrol bowser or the weather – a key driver of changes in fruit and vegetable prices. If underlying inflationary pressures remain contained, then the Reserve Bank can stay on the sidelines until well into 2011.
• Just as the Reserve Bank does, when it comes to readings of inflation you have to look below the surface. Clearly the Reserve Bank wouldn’t be hiking rates if fruit and vegetable prices are going up. But increases in petrol prices or key food prices cause people to further trim spending of other parts of the household budget. CommSec estimates that the average household could end up paying $16 a month more for petrol around Christmas-time than just three months ago.
• The job market remains in good shape but the downturn in the Advantage job index over the month of November is a concern. The Australian economy is losing momentum and the last thing we need at this stage is weakness to infiltrate the job market.

What do the figures show?

Inflation gauge:

• The monthly inflation gauge rose by 0.4 per cent in November after lifting by 0.3 per cent in October. The annual rate of inflation rose from 3.8 per cent to 3.9 per cent.
• Excluding volatile items like petrol and fruit & vegetables, the inflation gauge rose edged 0.1 per cent higher in November after being unchanged in October and rising 0.1 per cent in both August and September. The annual rate of core inflation remained at 3.2 per cent but the three-month annualised rate of inflation eased from 0.9 per cent to 0.7 per cent.
• The trimmed mean inflation measure rose by 0.3 per cent in November. The trimmed mean measure is up 3.0 per cent on a year ago while the three-month annualised rate rose from 1.3 per cent to 1.9 per cent.
• TD Securities noted that “Contributing most to the overall change in November were price rises for fruit and vegetables and communication. These were offset by falls in prices for audio, visual and computing, holiday travel and accommodation, and meat and seafood. The price of automotive fuel increased marginally, while rents increased by 0.6 per cent, the highest monthly increase since May.”

Petrol prices:

• According to the Australian Institute of Petroleum, the national average Australian price of unleaded petrol rose by 0.7 cents per litre to 125.7 cents a litre in the week to December 5. The metropolitan price rose by 1.1c/l to 126.0c/l, while the regional average price rose by 0.1c/l to 125.2c/l.
• Petrol prices across states in the past week were: Sydney (up 1.3 cents to 125.4c/l), Melbourne (up 0.8 cents to 125.8c/l), Brisbane (unchanged at 128.3c/l), Adelaide (up 2.2 cents to 125.2 c/l), Perth (up 2.2 cents to 125.1c/l), Darwin (down 3.0 cents to 127.6 c/l), Canberra (unchanged at 126.9c/l) and Hobart (up 0.9 cents to 129.8c/l).
• The national average wholesale (terminal gate) price today hit a 5-month low high of 120.4 cents a litre, up 3.4 cents over the week. Just two months ago the terminal gate price was at an 11-month low of 111.6c/l.
• Last week, the key Singapore unleaded petrol price rose by US$6.63 (7.0 per cent) to a 25-month high of US$101.28 a barrel. And in Australian dollar terms Singapore gasoline price rose by $6.57 (6.8 per cent) over the week to $103.79 a barrel.

Job advertisements:

• The Advantage internet job index rose by 3.4 per cent in November but the authors of the report note “the number of advertisements declined week by week signalling a slowing of the job market in the lead up to Christmas.” In November gains were recorded in transport (11.1 per cent), engineering (9.1 per cent) and legal (7.7 per cent) but losses were recorded by financial services and banking (-2.3 per cent). Across the states and territories, gains were strongest in South Australia (8.7 per cent), ACT (6.6 per cent) and Western Australia (6.2 per cent).
• The combined number of internet and newspaper job advertisements, as tracked by ANZ, rose by 2.9 per cent in November after a 0.7 per cent increase in October. Internet job ads rose by 3.0 per cent in the month, while newspaper job ads rose by 0.9 per cent. In annual terms job ads are up 33.2 per cent off a low base.

What is the importance of the economic data?

• The TD Securities/Melbourne Institute Monthly Inflation Gauge is designed to “provide a timely and accurate monthly measure of inflation in Australia”. The Bureau of Statistics only releases the Consumer Price Index on a quarterly basis.
• The monthly Job Advertisements release is a leading employment indicator. Employers only seek additional staff if business activity is strong, and more importantly, if they expect that conditions will remain favourable in coming months. It takes around 5-6 months for the new staff to be added to the payrolls. But a fall in job advertisements would have a more immediate impact on monthly employment estimates.
• 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.

What are the implications for interest rates and investors?

• Inflation is under control at present but some of the volatile elements like petrol and fruit and vegetable prices are starting to move higher. This complicates the situation for the Reserve Bank. While the Reserve Bank can’t lift rates to respond to factors outside its control, the risk is that higher inflation may become entrenched, with businesses using the higher inflation base to justify price increases.
• The lift in the price of petrol is further bad news for motorists, taking precious spending dollars out of consumer pockets. Retailers already have to contend with the effects of La Nina on seasonal spending, consumer conservatism and higher utility prices.
• Filling up the car with petrol is the single biggest outlay that Aussie households make each week so changes in petrol prices have a big impact on the budget and spending patterns. The average household may end up paying $16 a month more on petrol this Christmas than just three months ago.
• The job market is still in good shape, but with the economy losing momentum employment may also prove to be a casualty, further dragging on consumer spending and economic growth.
• One thing is certain – the Reserve Bank won’t touch rates tomorrow.

Produced by Commonwealth Research based on information available at the time of publishing. We believe that the information in this report is correct and any opinions, conclusions or recommendations are reasonably held or made as at the time of its compilation, but no warranty is made as to accuracy, reliability or completeness. To the extent permitted by law, neither Commonwealth Bank of Australia ABN 48 123 123 124 nor any of its subsidiaries accept liability to any person for loss or damage arising from the use of this report.

The report has been prepared without taking account of the objectives, financial situation or needs of any particular individual. For this reason, any individual should, before acting on the information in this report, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice. In the case of certain securities Commonwealth Bank of Australia is or may be the only market maker.

This report is approved and distributed in Australia by Commonwealth Securities Limited ABN 60 067 254 399 a wholly owned but not guaranteed subsidiary of Commonwealth Bank of Australia. This report is approved and distributed in the UK by Commonwealth Bank of Australia incorporated in Australia with limited liability. Registered in England No. BR250 and regulated in the UK by the Financial Services Authority (FSA). This report does not purport to be a complete statement or summary. For the purpose of the FSA rules, this report and related services are not intended for private customers and are not available to them.

Commonwealth Bank of Australia and its subsidiaries have effected or may effect transactions for their own account in any investments or related investments referred to in this report.

The post Petrol pain ahead; Tame inflation; Job ads slow appeared first on AdviserVoice.