Higher oil prices spells bad news for motorists

Weekly petrol prices, Job advertisements, Monthly inflation, CPI reweighting

• Petrol: According to the Australian Institute of Petroleum, the national average Australian price of unleaded petrol fell by 2.1 cents last week to 134.3 cents a litre after rising a record 9 cents in the previous week.
• Job advertisements: Job advertisements rebounded in October, increasing by 1.4 per cent to 169,577 ads after falling by a revised 0.7 per cent in September. Job ads are up 12.5 per cent on a year ago.
• Monthly inflation: The Melbourne Institute’s headline inflation gauge rose by 0.3 per cent in October to 2.6 per cent on a year ago, up from 2.5 per cent in September. The annual reading has been above 2 per cent for ten consecutive months, well above the Reserve Bank’s latest reading of 1.8 per cent in the September quarter.
• New Consumer Price Index weights: The Bureau of Statistics released revised Consumer Price Index and Selected Cost Index weights following the recent release of its Household Expenditure Survey.
• The petrol figures have implications for retailers, especially petrol marketing groups. The job ads data is a leading indicator of the job market and therefore important for consumer-focussed stocks and companies such as SEEK. The Melbourne Institute inflation gauge is a leading monthly indicator of consumer price movements.

What does it all mean?

• Motorists should get used to paying a little more for petrol. And a key reason is that OPEC oil producers as well as some non-OPEC producers like Russia have been successful in curtailing production and supporting prices.
• Further supporting prices, US oil services operator Schlumberger expects US onshore oil supply to increase less than expected next year due to rising costs. And further constraining production, the number of US oil rigs in operation fell by eight last week, the biggest weekly fall since May 2016.
• On Friday, Brent crude rose by US$1.45 or 2.4 per cent to US$62.07 a barrel. US Nymex rose by US$1.10 or 2.0 per cent to US$55.64 a barrel. Oil prices rose around 3 per cent over the week.
• The Aussie labour market is strong and the latest job ads data suggest it will stay that way. The unemployment rate is at four-year lows of 5.5 per cent with 372,000 jobs added so far in 2017. Job ads have now risen in four of the last five months.
• The Bureau of Statistics have revised the weighting for the Consumer Price Index. There are no implications for future inflation rates or interest rates. But the weights highlight the importance of discretionary items like restaurant meals and overseas travel.
• Why is it hard to find entry-level workers? Because nearly all of them are studying. New data shows that 83.8 per cent of those 15-19 years are studying, up from 77 per cent a decade ago.

What do the figures show

Petrol prices

• According to the Australian Institute of Petroleum, the national average Australian price of unleaded petrol fell by 2.1 cents to 134.3 cents a litre in the past week after rising by a record 9 cents in the previous week. The metropolitan petrol price fell by 3.6 cents to 133.5 cents per litre while the regional price rose by 0.9 cents to 135.7 cents per litre.
• Average unleaded petrol prices across states and territories over the past week were: Sydney (down by 3.3 cents to 134.4 c/l), Melbourne (down by 4.4 cents to 134.3 c/l), Brisbane (down by 4.8 cents to 136.2 c/l), Adelaide (down by 8.4 cents to 123.2 c/l), Perth (up by 0.7 cents to 131.1 c/l), Darwin (up by 8.3 cents to 140.5 c/l), Canberra (down by 0.1 cents to 138.7 c/l) and Hobart (up by 1.6 cents to 138.3 c/l).
• The national average Australian price of diesel petrol rose by 0.8 cents to 131.0 cents per litre. The metropolitan price rose by 1.0 cents to 131.3 c/l, while the regional average price rose 0.7 cents to 130.8 c/l.
• Today, the national average wholesale (terminal gate) unleaded petrol price stands at 121.0 cents a litre, up 3.6 cents over the week. The terminal gate diesel price stands at 119.9 cents a litre, up 2.9 cents over the past week.
• Last week the key Singapore gasoline price rose by US$2.20 or 3.1 per cent to US$74.10 a barrel. In Australian dollar terms the Singapore gasoline price rose by $2.27 or 2.4 per cent to $96.36 a barrel or 57.34 cents a litre.
• MotorMouth records the following average retail prices for capital cities today: Sydney 131.6c; Melbourne 132.0c; Brisbane 132.4c; Adelaide 141.5c; Perth 121.6c; Canberra 138.8c; Darwin 142.3c; Hobart 138.3c.

Job advertisements

• Job advertisements rebounded in October, increasing by 1.4 per cent to 169,577 ads after falling by a revised 0.7 per cent in September (previously reported as flat). Job ads are up 12.5 per cent on a year ago.

Monthly inflation

• Monthly headline inflation rose by 0.3 per cent in October to be up 2.6 per cent on a year ago (2.5 per cent annual increase in September). The annual reading has been above 2 per cent for ten consecutive months, well above the Reserve Bank’s latest reading of 1.8 per cent in the September quarter.

New consumer price index weights and household expenditure survey

• The Bureau of Statistics released revised weights for the Consumer Price Index and Selected Cost Index following the recent release of its latest Household Expenditure Survey (HES). The Bureau has previously used the HES to derive the Consumer Price Index expenditure class weights every five years, but will now re-weight every year, going forward. The updated average weekly HES and consumer price index weights are shown below.

What is the importance of the economic data?

• Weekly figures on petrol prices are compiled by ORIMA Research on behalf of the Australian Institute of Petroleum (AIP). 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. AIP data for retail petrol prices is based on available market data supplied by MotorMouth.
• 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.
• The Melbourne Institute reports estimates of monthly price (inflation) movements for a wide range of goods and services across the capital cities of Australia. It aims to provide financial markets and policy-makers with regular updates on trends in inflation.
• The Bureau of Statistics has recently increased the frequency of its Consumer Price Index weight updates. The next update will be for the December quarter 2017.

What are the implications for interest rates and investors?

• Motorists need to get used to paying $1.30-$1.40 a litre for petrol rather than the $1.10-$1.20 a litre that prevailed mid-year. Higher petrol prices add to the impact of higher power bills in crimping consumer spending. Still, lower prices for food, clothing, communications and household equipment mean that it is not all one-way traffic. Unfortunately petrol prices and power bills dominate the focus of the media.
• The good news is that the job market is in good shape and expected to stay that way in coming months.
• Higher global oil prices could end up providing the spark to inflation that central banks are hoping for. Inflation rates of 2-3 per cent are preferred to rates of 1-2 per cent. Central banks would love to get interest rates up to more ‘normal’ levels to ensure that they are well placed should another economic downturn emerge.