Domestic airfares; China inflation
- Discount airfares: Discount airfares fell by 0.7 per cent in February after declining by 34.6 per cent in January. Discount fares are down by 4.3 per cent over the year – the weakest annual growth rate in 2½ years. In smoothed terms, discount fares increased by 0.5 per cent on a year ago.
- Business airfares: Business airfares rose by 0.5 per cent in February after declining by 3.1 per cent in January. Business fares are down by 2.6 per cent over the year. In smoothed terms, business fares fell by 2.5 per cent on a year ago – the weakest annual growth rate in 5½ years.
- China business inflation: Producer prices rose by 0.1 per cent in the year to January (forecast: +0.3 per cent), down from the 0.9 per cent increase in the year to December – the slowest annual growth rate in 29 months.
- China consumer prices: Consumer prices rose by 1.7 per cent in the year to January (forecast: +1.9 per cent), after lifting by 1.9 per cent in December. Over the year to January, food inflation lifted by 1.9 per cent and non-food inflation was steady at 1.7 per cent. Core consumer prices rose by 1.9 per cent in December.
The airfares data provides a guide on inflationary pressures as well as giving an insight into operating conditions for airlines. The Chinese data have implications for the currency markets and therefore exporters and importers.
What does it all mean?
- Australia’s largest annual online travel sale “Click Frenzy Travel” kicks off on February 26. More than a million travellers are expected to log on and grab themselves a bargain with domestic airlines and hotels competing hard against their overseas rivals. And the timing couldn’t be better with the annual growth rate in discount airfares falling by the most since August 2016.
- While the weaker Australian dollar is an international tourist magnet, it may be deterring Aussies from heading abroad as our purchasing power diminishes in foreign currencies. Recent data from Austrade shows that domestic tourism is thriving. In fact, the number of Aussies staying at local or interstate hotels, motels and resorts increased by 8 per cent to 94 million nights over the year to September.
- Again, according to Austrade domestic business travel grew by 8 per cent to 22.6 million over the year to September and spending increased by 13 per cent to $18.4 billion. In smoothed terms, business travellers are benefiting from the weakest annual growth in business airfares since April 2013.
- Chinese inflation is contained. But consumers paid more for an array of products during the month of January. Cold weather impacted prices of fruit (up 2.3 per cent) and vegetables (up 9.1 per cent) as demand lifted in advance of the Lunar New Year/Spring Festival holiday period.
- Pork prices, however, fell by 1.0 per cent after the trade embargo was lifted, boosting supply. Falling gasoline prices (down 3.7 per cent) and diesel prices (down 4.0 per cent) more than offset rising seasonal airfares (up 15.9 per cent), housekeeping services (up 5.8 per cent) and hairdressing costs (up 5.4 per cent). And telecommunications deflation (down 1.3 per cent over the year to January) is another factor due to falling demand for smartphones.
- Annual business inflation decelerated for a seventh successive month, with producer prices lifting by just 0.1 per cent over the year to January – the lowest growth rate in over two years – sparking deflationary fears. Raw materials prices (down 1.6 per cent) fell for the first time in two years – led lower by crude oil – driving down broader factory prices
What do the figures show
Airfares
- The Bureau of Infrastructure, Transport and Regional Economics (BITRE) reports that discount airfares fell by 0.7 per cent in February after declining by 34.6 per cent in January. Discount fares are down by 4.3 per cent over the year – the weakest annual growth rate in 2½ years. In smoothed terms, discount fares increased by 0.5 per cent on a year ago.
- Restricted airfares rose by 1.2 per cent in February after falling by 1.8 per cent in January. Restricted economy fares are up by 5.0 per cent over the year. In smoothed terms, restricted economy fares increased by 4.2 per cent on a year ago.
- Business airfares rose by 0.5 per cent in February after declining by 3.1 per cent in January. Business fares are down by 2.6 per cent over the year. In smoothed terms, business fares fell by 2.5 per cent on a year ago – the weakest annual growth rate in 5½ years.
China Inflation
- Consumer prices rose by 1.7 per cent in the year to January (forecast: +1.9 per cent), after lifting by 1.9 per cent in December.
- Consumer prices rose by 0.5 per cent in January. Food prices rose by 1.6 per cent to stand 1.9 per cent higher than a year ago. Pork prices fell by 1.0 per cent to be down 3.2 per cent over the year. Non-food prices rose by 0.2 per cent to stand 1.7 per cent higher than a year ago. Consumer goods lifted by 1.3 per cent and services goods rose by 2.4 per cent over the year to January.
- Over the year to January, food, tobacco and alcohol prices rose by 2.0 per cent; health care prices rose 2.7 per cent; transportation and communication prices fell 1.3 per cent; rent, fuel and utilities were up 2.1 per cent; education, culture and recreation prices increased by 2.9 per cent; household goods and services prices were up 1.5 per cent; clothing prices rose by 1.6 per cent; and other goods and services increased by 2.3 per cent.
- Producer prices rose by 0.1 per cent in the year to January (forecast: +0.3 per cent), down from the 0.9 per cent increase in the year to December.
- Over the year to January, the prices of: producer goods fell by 0.1 per cent; raw materials were down 1.6 per cent; manufacturing was up 0.3 per cent; mining rose 1.2 per cent; consumer goods were up 0.6 per cent; food production lifted 0.8 per cent; clothing increased 1.6 per cent; daily use goods increased by 0.3 per cent; consumer durables prices were flat.
What is the importance of the economic data?
- The Bureau of Infrastructure, Transport and Regional Economics (BITRE) releases data on domestic and international aviation each month. The data is useful in tracking consumer spending and airline performance.
- China’s National Bureau of Statistics releases its monthly economic statistics around mid-month. Quarterly GDP data is released around the 19th of January, April, July and October. China’s Customs Office releases trade data, and the People’s Bank of China releases financial statistics, around the 10th of each month. China is Australia’s largest trading partner and changes in the Chinese economy have major implications for the Aussie economy.
What are the implications for interest rates and investors?
- Chinese business inflation is weakening in response to slowing factory activity as US tariffs take effect and domestic demand eases, sparking deflationary concerns. The last time producer prices were negative was August 2016. And annual profits for industrial companies grew by 10.3 per cent in 2018, down from 21 per cent in 2017. Profit growth has decelerated in the equipment manufacturing and electrical machinery manufacturing sectors.
- Recent Chinese manufacturing activity gauges are contracting and are at the lowest level in two years, implying a continued moderation in industrial profit margins and business inflation.
- While the Chinese and US trade envoys continue to haggle over a potential trade deal, Chinese growth continues to slow to around three-decade lows. So far the authorities have adopted a piecemeal approach given limited policy options due to the more urgent need to deleverage the financial system amid increasing defaults.
- Fiscal policy initiatives focused on personal and business tax cuts, bond issuance for infrastructure spending and social housing investment could provide further support for the Chinese economy. But this may be countered by falling business investment and hiring should the US trade war drag on.
- President Xi Jinping recently warned his comrades to be on the lookout for ‘black swans and grey rhinos’ this year. America’s concerns about intellectual property theft and the mounting debt burden remain the biggest risks to China’s economic prosperity. Though we expect a gradual slowdown as the government also continues to pivot towards consumer and services sector-led activity.
- Today’s Chinese inflation figures have no immediate implications for interest rates in Australia and Commonwealth Bank Group economists do not currently expect any changes in China’s official cash rates in the near term.
- Domestic holiday and accommodation costs lifted by over 6 per cent in the December quarter ahead of the summer holidays. But falling discount and business airfares, combined with still-low petrol prices, may reduce costs for domestic holidaymakers in the near term.
- CommSec envisages no change in the Australian cash rate for the foreseeable future.