AdviserVoiceCommSec: Fruit price plunge; Manufacturing shrinks; $A soars https://www.adviservoice.com.au/2011/05/commsec-economic-insights-fruit-prices-plunge-manufacturing-shrinks-a-soars/ Financial planner information & financial planner education/CPD - AdviserVoice Thu, 04 Jun 2026 21:30:42 +0000 en-US hourly 1 https://wordpress.org/?v=7.0 CommSec Economic Insights: Fruit prices plunge; Manufacturing shrinks; $A soars https://www.adviservoice.com.au/2011/05/commsec-economic-insights-fruit-prices-plunge-manufacturing-shrinks-a-soars/ https://www.adviservoice.com.au/2011/05/commsec-economic-insights-fruit-prices-plunge-manufacturing-shrinks-a-soars/#respond Tue, 03 May 2011 02:59:35 +0000 https://adviservoice.com.au/?p=8024 Weekly petrol prices; TD Securities monthly inflation gauge
  • Inflationary pressures ease. The TD Securities-Melbourne Institute monthly inflation gauge rose by 0.3 per cent in April or 3.6 per cent over the year. The trimmed mean (underlying rate) rose by 0.2 per cent in April with the annual rate easing to a seven-month low of 2.3 per cent.
  • Fruit & veg prices slump. According to TD Securities, fruit and vegetable prices fell by 12 per cent in April after rising by 11.3 per cent in March.
  • Manufacturing contracts. The Performance of Manufacturing index stood at 48.4 in April. Any reading below 50 indicates that the manufacturing sector is contracting.
  • Aussie dollar soars. The Aussie dollar hit a 29-year high (since January 27 1982) of US$1.10 this morning, putting more pressure on manufacturers, exporters, tourist operators and even investors

What does it all mean?

  • The Reserve Bank Board can rest easy – inflation remains under control. The latest monthly inflation gauge shows that the key underlying rate of inflation is still in the lower end of the Reserve Bank’s 2-3 per cent target band.
  • The recent spike in the headline rate of inflation was wholly due to higher fruit and vegetable prices and the higher cost of petrol. But there are now positive signs that headline inflation has peaked. Fruit and vegetable prices soared by over 11 per cent in March, but they fell just as spectacularly in April, slumping by 12 per cent.
  • The latest update on prices shows how misguided some commentators have been on inflation, and the implications for interest rates. Some have believed that the Reserve Bank should be rushing to lift rates, despite the fact that the central bank said it would look-through the flood-induced lift in fruit and vegetable prices.
  • The simple fact is that underlying inflation remains tame because consumers aren’t spending. Add in the fact that the high Aussie dollar is causing pain to manufacturing and that house prices are slumping, and it is clear that there is no reason for the Reserve Bank to touch interest rates.
  • A higher Aussie dollar is considered a positive development. But clearly that’s not the case for manufacturers, exporters, tourist operators and even investors. Foreigners own 40 per cent of Aussie shares, and as the Aussie dollar continues to soar, this causes fund managers to become over-weight Aussie equities. As a result, the high Aussie dollar is causing foreign investors to trim holdings on Aussie shares and place on hold future purchases of our equities.
x

What do the figures show?

Inflation gauge:
  • The monthly inflation gauge rose by 0.3 per cent in April after lifting by 0.6 per cent in March and by 0.2 per cent in February. The annual rate of inflation eased from 3.8 per cent to 3.6 per cent.
  • The underlying rate (trimmed mean) rose by 0.2 per cent in the month, dragging the annual rate to a seven-month low of 2.3 per cent.
  • Excluding volatile items like petrol and fruit & vegetables, the inflation gauge rose by 0.5 per cent in April with the annual rate edging up from 2.1 per cent to 2.2 per cent.
  • TD Securities noted that “Contributing most to the overall change in April was a seasonal price rise for health services, as well as increases in overseas holiday travel and accommodation prices, and a small rise in automotive fuel. These were offset by a substantial fall in fruit and vegetable prices, and smaller falls in audio, visual and computing, and household supplies. The price of fruit and vegetables slumped by 12 per cent in April, following the 11.3 per cent rise in March. The price of rent rose 1.2 per cent in April, the highest monthly increase recorded since January 2009.”
x
Performance of Manufacturing (PMI):
  • The PMI rose by 0.5 points to 48.4 in April. However any reading below 50 signifies that the manufacturing sector is contracting.
  • Seven of the 12 manufacturing sub-sectors reported declines in activity in April led by transport equipment and textiles.
x
What is the importance of the economic data?
  • The monthly Performance of Manufacturing Index is the Australian equivalent of the US ISM manufacturing gauge. The PMI is one of the timeliest economic indicators released in Australia. The PMI is useful not just in showing how the manufacturing sector is performing but in providing some sense about where it is heading. The key ‘forward looking’ components are orders and employment.
  • 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.
x
What are the implications for interest rates and investors?
  • It is right for the Reserve Bank to be watchful on inflation, but it would benefit no one if it was to over-react to factors outside its control by lifting interest rates.
  • It is clear that underlying inflation remains solidly under control and there are also signs that headline inflation may have peaked with fruit and vegetable prices sliding in April.
  • Manufacturing is going backwards, and it is highly likely that equivalent gauges for the services and construction sectors to be released this week will show similar results. We expect the Reserve Bank to stay on the interest rate sidelines until at least August.
  • The Aussie dollar could easily reach US$1.15 in the short-term given the benign neglect for the greenback by US policymakers.

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.
]]> Weekly petrol prices; TD Securities monthly inflation gauge
  • Inflationary pressures ease. The TD Securities-Melbourne Institute monthly inflation gauge rose by 0.3 per cent in April or 3.6 per cent over the year. The trimmed mean (underlying rate) rose by 0.2 per cent in April with the annual rate easing to a seven-month low of 2.3 per cent.
  • Fruit & veg prices slump. According to TD Securities, fruit and vegetable prices fell by 12 per cent in April after rising by 11.3 per cent in March.
  • Manufacturing contracts. The Performance of Manufacturing index stood at 48.4 in April. Any reading below 50 indicates that the manufacturing sector is contracting.
  • Aussie dollar soars. The Aussie dollar hit a 29-year high (since January 27 1982) of US$1.10 this morning, putting more pressure on manufacturers, exporters, tourist operators and even investors

What does it all mean?

  • The Reserve Bank Board can rest easy – inflation remains under control. The latest monthly inflation gauge shows that the key underlying rate of inflation is still in the lower end of the Reserve Bank’s 2-3 per cent target band.
  • The recent spike in the headline rate of inflation was wholly due to higher fruit and vegetable prices and the higher cost of petrol. But there are now positive signs that headline inflation has peaked. Fruit and vegetable prices soared by over 11 per cent in March, but they fell just as spectacularly in April, slumping by 12 per cent.
  • The latest update on prices shows how misguided some commentators have been on inflation, and the implications for interest rates. Some have believed that the Reserve Bank should be rushing to lift rates, despite the fact that the central bank said it would look-through the flood-induced lift in fruit and vegetable prices.
  • The simple fact is that underlying inflation remains tame because consumers aren’t spending. Add in the fact that the high Aussie dollar is causing pain to manufacturing and that house prices are slumping, and it is clear that there is no reason for the Reserve Bank to touch interest rates.
  • A higher Aussie dollar is considered a positive development. But clearly that’s not the case for manufacturers, exporters, tourist operators and even investors. Foreigners own 40 per cent of Aussie shares, and as the Aussie dollar continues to soar, this causes fund managers to become over-weight Aussie equities. As a result, the high Aussie dollar is causing foreign investors to trim holdings on Aussie shares and place on hold future purchases of our equities.
x

What do the figures show?

Inflation gauge:
  • The monthly inflation gauge rose by 0.3 per cent in April after lifting by 0.6 per cent in March and by 0.2 per cent in February. The annual rate of inflation eased from 3.8 per cent to 3.6 per cent.
  • The underlying rate (trimmed mean) rose by 0.2 per cent in the month, dragging the annual rate to a seven-month low of 2.3 per cent.
  • Excluding volatile items like petrol and fruit & vegetables, the inflation gauge rose by 0.5 per cent in April with the annual rate edging up from 2.1 per cent to 2.2 per cent.
  • TD Securities noted that “Contributing most to the overall change in April was a seasonal price rise for health services, as well as increases in overseas holiday travel and accommodation prices, and a small rise in automotive fuel. These were offset by a substantial fall in fruit and vegetable prices, and smaller falls in audio, visual and computing, and household supplies. The price of fruit and vegetables slumped by 12 per cent in April, following the 11.3 per cent rise in March. The price of rent rose 1.2 per cent in April, the highest monthly increase recorded since January 2009.”
x
Performance of Manufacturing (PMI):
  • The PMI rose by 0.5 points to 48.4 in April. However any reading below 50 signifies that the manufacturing sector is contracting.
  • Seven of the 12 manufacturing sub-sectors reported declines in activity in April led by transport equipment and textiles.
x
What is the importance of the economic data?
  • The monthly Performance of Manufacturing Index is the Australian equivalent of the US ISM manufacturing gauge. The PMI is one of the timeliest economic indicators released in Australia. The PMI is useful not just in showing how the manufacturing sector is performing but in providing some sense about where it is heading. The key ‘forward looking’ components are orders and employment.
  • 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.
x
What are the implications for interest rates and investors?
  • It is right for the Reserve Bank to be watchful on inflation, but it would benefit no one if it was to over-react to factors outside its control by lifting interest rates.
  • It is clear that underlying inflation remains solidly under control and there are also signs that headline inflation may have peaked with fruit and vegetable prices sliding in April.
  • Manufacturing is going backwards, and it is highly likely that equivalent gauges for the services and construction sectors to be released this week will show similar results. We expect the Reserve Bank to stay on the interest rate sidelines until at least August.
  • The Aussie dollar could easily reach US$1.15 in the short-term given the benign neglect for the greenback by US policymakers.

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.

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