• The Reserve Bank Board notes that a pickup in inflation and wage growth “have brought forward the likely timing of the first increase in interest rates.”
• According to the Australian Institute of Petroleum, the national average unleaded petrol price fell by 8 cents a litre to 166.3 cents a litre (c/l) last week.
• Using estimates of daily capital city prices, CommSec estimates that unleaded pump prices are down 57.8c/l from the record high of 216.6c/l on March 15, 2022 – a saving of around $80 a month for the average Aussie household.
• The household spending indicator from the Bureau of Statistics shows that furnishings and household equipment, health and clothing have been the most resilient sectors for spending over the past two years.

What does it all mean?

• RBA Board minutes. The Reserve Bank Board is poised to lift rates from record lows. The Board has noted a lift in price inflation and a pickup in wages growth. Seemingly, now the job is to tick off the next inflation reading on April 27 and the wage price index on May 18 before starting the process of lifting cash rates on June 7. But a rate hike at the May 3 RBA Board meeting can’t be totally ruled out.
• The RBA continues to highlight a raft of uncertainties such as the wage response to tight job markets and whether expected price increases turn out to be ‘one-off’ moves or the start of a period of ongoing price increases. Clearly these factors affect the timing and size of future rate hikes.
• The RBA referred to floods, rising food and fuel costs, the Ukraine war, tight job markets and the recent federal budget as key considerations in assessing the inflation, wage and interest rate outlooks.
• Petrol. Falls in global oil prices and the local cut in the fuel excise tax have delivered savings to Aussie households of around $80 a month. The estimates are based on data provided by the Australian Institute of Petroleum, real-time fuel app MotorMouth and the Australian Bureau of Statistics.
• CommSec estimates that unleaded pump prices are down 57.8c/l from the record high of 216.6c/l on March 15, 2022. Based on an average weekly purchase of 35 litres of petrol per week, the average Aussie family is saving around $80 a month.
• The bad news for motorists is that Brent and Nymex crude oil prices lifted near 9 per cent last week (up 15 per cent from recent lows) and the Singapore gasoline price vaulted 6.5 per cent higher in Aussie dollar terms.
• Fears of a European ban on Russian oil imports and reduced oil production in Libya have combined to push oil prices higher. The lift in global oil prices and the ending of discounting cycles in Aussie capital cities could combine to push pump prices to near $1.80-1.90 a litre again.
• With the wholesale price currently near $1.55 a litre, a ‘fair’ price at southern and eastern mainland capital city petrol pumps is around $1.70-$1.75 a litre.
• Household spending. A measure of household spending compiled by the Bureau of Statistics shows that furnishings and household equipment, health and clothing & footwear have been the most resilient areas of household spending over the pandemic period. Transport and hotels, cafes and restaurants have been most negatively affected.

What do you need to know?

Reserve Bank Board minutes

• Minutes of the last RBA Board meeting are here: https://www.rba.gov.au/monetary-policy/rba-board-minutes/2022/2022-04-05.html
• Last paragraph: “Inflation had picked up and a further increase was expected, with measures of underlying inflation in the March quarter expected to be above 3 per cent. Wages growth had also picked up but, in aggregate terms, had been below rates likely to be consistent with inflation being sustainably at the target. These developments have brought forward the likely timing of the first increase in interest rates. Over coming months, important additional evidence will be available on both inflation and the evolution of labour costs. Consistent with its announced framework, the Board agreed that it would be appropriate to assess this evidence and other incoming information as it sets policy to support full employment in Australia and inflation outcomes consistent with the target.”
• Housing: “Members observed that high rates of household saving meant many households had built substantial buffers, though some households had only limited buffers.”
• Inflation outlook: “An updated set of Bank forecasts will be published in May. The speed of the resolution of the various global supply-side issues, developments in global energy markets and the evolution of overall labour costs were key sources of uncertainty about the inflation outlook.”
• Inflation outlook: “…non-labour input cost pressures were thought likely to persist for longer than previously expected. Information from the Bank’s liaison program indicated that many firms had either increased selling prices over recent months or anticipated increasing prices in the months ahead. However, there was uncertainty about whether these price adjustments had represented a one-off shift in the level of prices or the start of a period of ongoing price increases.”
• Wages: “Wages growth had picked up, but at the aggregate level was only around the relatively low levels prevailing prior to the onset of the pandemic. Members observed, however, that there were some areas where larger wage increases had been recorded. Given the tightness of the labour market, a further strengthening of aggregate wages growth and broader measures of labour costs was expected. The pick-up was still expected to be only gradual, although there was uncertainty about the behaviour of wages at historically low levels of the unemployment rate.”
• Wage outlook: “Reports from the Bank’s liaison program suggested that private sector wages growth had continued to pick up in the March quarter. This shift had been mostly evident in individual pay arrangements; wage increases provided in enterprise bargaining agreements had reportedly remained around the subdued rates seen in late 2021. Broader measures of labour costs had been expected to increase at a faster pace than base wages in the period ahead. Nevertheless, members noted that uncertainty about the behaviour of labour costs at historically low levels of unemployment remains.”
• Rate outlook: “Members observed that, while market pricing implied a swift increase in policy rates over the near term, expectations were for rates to peak at levels that were low in a historical context.”
• Job outlook: “…information from the Bank’s liaison program had indicated that firms planned to expand headcount in the period ahead.”

Weekly oil market update

• Last week, the Brent crude price rose by US$8.92 or 8.7 per cent to US$111.70 a barrel. And the US Nymex crude price rose US$8.69 or 8.8 per cent to US$106.95 a barrel. Crude prices have lifted almost 15 per cent since recent lows on April 11.
• In the past week, the benchmark Singapore gasoline price rose by US$7.50 or 6.2 per cent to a 3-week high of US$129.30 a barrel. In Aussie dollar terms, the Singapore gasoline price rose by US$10.60 or 6.5 per cent to $173.37 a barrel or 109 cents a litre.
• According to the Australian Institute of Petroleum, the national average unleaded petrol price fell by 8 cents a litre to 166.3 c/l last week. Metropolitan prices fell by 8.5 cents to 161.6c/l and regional prices dropped by 7 cents to 176.1c/l.
• The national average wholesale price or Terminal Gate Price (TGP) of unleaded petrol was down by 3.4 cents last week to a 4-month low of 153.1c/l. Today, the TGP price sits at 154.7c/l, off Thursday’s low of 152.7 cents.
• The smoothed (2-month average) gross retail margin rose last week from 14.46 cents per litre to a 12-week high of 14.79 cents a litre (12-month average 14.22 cents per litre).
• MotorMouth records the following average retail prices for unleaded fuel today: Sydney 161.3c/l; Melbourne 156.8c/l; Brisbane 161.2c/l; Adelaide 152.1c/l; Perth 152.3c/l; Hobart 178.7c/l; Darwin 184.9c/l and Canberra 174.4c/l.

Household spending indicator

• The Australian Bureau of Statistics has released the February data of its new household spending indicator. The measure utilises data from banks on credit and debit card activity.
• Household spending increased 7.7 per cent through the year, current price, calendar adjusted.
• Through the year, household spending increased the most for clothing and footwear (+20.2 per cent), recreation and culture (+17.8 per cent) and hotels, cafes and restaurants (+15.6 per cent).
• The only categories to show decreases in household spending through the year were alcoholic beverages and tobacco (-10.3 per cent) and miscellaneous goods and services (-0.8 cent).
• Victoria (+13.9 per cent) and Western Australia (+12.1 per cent) were the states with highest increase in household spending through the year.
• When comparing February 2022 to pre-pandemic January 2020 estimates, total household spending increased 5.6 per cent in current price, calendar adjusted terms. Health (up 25.4 per cent), food (up 13.4 per cent) and furnishings and household equipment (up 12.2 per cent) showed the strongest rises when compared to pre-pandemic levels.

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