• Alternate inflation measures: The Bureau of Statistics has found that the living cost index for Age pensioners rose by 0.1 per cent in the September quarter to be up 1.9 per cent over the year. The broader Consumer Price Index was up by 0.5 per cent in the quarter and up 2.3 per cent over the year.
• US rates decision: The US Federal Reserve hands down its interest rate decision at 5.00am (AEDT) on Thursday. The result has broad implications for financial markets including shares, currencies and interest rates.

What does it all mean?

• When it comes to measuring inflation or price changes in the economy, generally people view the statistics with some scepticism. No matter the result, most people tend to believe that prices are rising by more than the published data asserts. That is just the normal human reaction – you tend to recall the goods that have become more expensive, but tend to less easily recall the goods that have become less expensive.
• Overall, inflation is low in Australia. The consumer price index indicates that prices are up 2.3 per cent over the year with inflation running at a 2 per cent annualised pace over the past six months. “Underlying” inflation is around 2.4 per cent. Inflation is in the Reserve Bank’s 2-3 per cent target band and therefore interest rates are going nowhere.
• According to the latest living cost indexes from the ABS, employees and age pensioners are doing best, experiencing annual inflation of 1.9 per cent. Inflation for “Pensioner and Beneficiary” households is 2.1 per cent, inflation for “Self-funded Retiree” households is 2.2 per cent and inflation in “Other Government Transfer Recipient” households is 2.3 per cent.
• Inflation is by no means “dead” but businesses now face competitive challenges across suburbs, states and across countries. It would be a bold business-owner that simply lifts prices when experiencing higher costs. First, the business-owner would look to cut costs elsewhere or boost productivity or efficiency. It is too easy for consumers to compare prices at competing businesses or to purchase goods online.
• If inflation stays lower for longer, then interest rates will spend more time at generational lows. For efficient businesses, especially those firms with an element of ‘market power’ in setting prices, the economic environment is very favourable.
• The latest data suggests that real wage growth is occurring again. The latest wage cost index (June quarter) shows wages are up 2.6 per cent on a year ago while the “employee” living cost index is up just 1.9 per cent over the year to September.
• The US Federal Reserve Open Market Committee (FOMC) meeting is important for traders; less important for longer-term investors. The meeting will make a decision on winding up the current period of quantitative easing (QE: effectively printing money). The FOMC may also provide some hints about when the period of super-low rate settings (federal funds rate between 0-0.25 per cent) will end.
• The US economy is doing well, so QE has run its course. But inflation is still low, so there is no rush to lift rates. A healthy economy has “normal” interest rates. So if the FOMC signalled rate hikes sooner, not later, it would cause short-term angst, but the ‘big picture’ story is more positive.

What do the figures show?

Selected living cost indexes:

• The ABS has released the following living cost indexes data for household types in the September quarter:
• Pensioner and Beneficiary households; up by 0.2 per cent in the quarter and 2.1 per cent over the year.
• Employee households; up by 0.4 per cent in the quarter and 1.9 per cent over the year.
• Age pensioner households; up by 0.1 per cent in the quarter and 1.9 per cent over the year.
• Other Government Transfer Recipient households; up by 0.3 per cent in the quarter and 2.3 per cent over the year.
• Self-funded Retiree households; up by 0.5 per cent in the quarter and 2.2 per cent over the year.
• For reference, the Consumer Price Index rose by 0.5 per cent in the quarter and 2.3 per cent over the year.
• The Australian Bureau of Statistics releases “Selected Living Cost Indexes” each quarter. As different groups in the community have different spending preferences, it naturally applies that they experience different price pressures.
• The data assists in assessing the outlook for retailers and consumer spending more generally. The ABS says that the living indexes attempt to answer the following question: ‘By how much would after-tax money incomes need to change to allow households to purchase the same quantity of consumer goods and services that they purchased in the base period?’
• Inflationary pressures are well contained in Australia – and for that matter, across the globe. Interest rates are likely to remain steady for around a year. Retailers are being forced to focus on productivity, cost cutting and marketing strategies to maintain market share and boost sales.
• The Federal Reserve monetary policy decision has broad implications. For instance, if the Fed emphasises low inflation, suggesting rate hikes are some way off, then the US dollar may ease, boosting the Aussie dollar, commodity prices and equities markets.
• CBA’s FX strategy team have noted: “We do not expect any material change in the FOMC’s forward guidance on the funds rate at this meeting. However, the risk is that the Fed emphasises the rising threat of disinflationary pressures (strong dollar, benign wage growth, softer global growth) which could push the US dollar below its 40-day moving average.”

What is the importance of the economic data?

• The Australian Bureau of Statistics releases “Selected Living Cost Indexes” each quarter. As different groups in the community have different spending preferences, it naturally applies that they experience different price pressures.
• he data assists in assessing the outlook for retailers and consumer spending more generally. The ABS says that the living indexes attempt to answer the following question: ‘By how much would after-tax money incomes need to change to allow households to purchase the same quantity of consumer goods and services that they purchased in the base period?’

What are the implications for interest rates and investors?

• Inflationary pressures are well contained in Australia – and for that matter, across the globe. Interest rates are likely to remain steady for around a year. Retailers are being forced to focus on productivity, cost cutting and marketing strategies to maintain market share and boost sales.
• The Federal Reserve monetary policy decision has broad implications. For instance, if the Fed emphasises low inflation, suggesting rate hikes are some way off, then the US dollar may ease, boosting the Aussie dollar, commodity prices and equities markets.
• CBA’s FX strategy team have noted: “We do not expect any material change in the FOMC’s forward guidance on the funds rate at this meeting. However, the risk is that the Fed emphasises the rising threat of disinflationary pressures (strong dollar, benign wage growth, softer global growth) which could push the US dollar below its 40-day moving average.”

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• 

  “Inflation is healthy without being excessive”: Commsec

  Tame inflation: The Consumer Price Index – the main measure of inflation in Australia – rose by 0.5 per cent in the September quarter, in line with expectations. In seasonally adjusted terms the CPI rose by 0.1 per cent. The CPI stands 2.3 per cent higher than a year ago.

• Underlying measures: The Reserve Bank monitors three measures to derive the underlying inflation rate. The trimmed mean rose by 0.4 per cent in the September quarter (2.5 per cent annual); the weighted median rose by 0.6 per cent (2.6 per cent annual) and the CPI less volatile items rose by 0.4 per cent (2.1 per cent annual). Overall, underlying inflation rose by 0.5 per cent in the quarter and around 2.4 per cent over the year.
• The Bureau of Statistics noted: “The most significant price rises this quarter were for fruit (+14.7 per cent), new dwelling purchase by owner-occupiers (+1.1 per cent), property rates and charges (+6.3 per cent) and other services in respect of motor vehicles (+5.8 per cent). These rises were partially offset by falls, for electricity (–5.1 per cent) and automotive fuel (–2.5 per cent).”
• Big movers: Electricity fell by 5.1 per cent in the quarter to be down 4.4 per cent over the year – marking the largest annual fall on record. Household textiles fell by a record 8.0 per cent over the year. Similarly personal care fell by a record 3.8 per cent over the year. Water charges fell by 0.6 per cent in the quarter to be up 0.4 per cent on a year ago – also a record low annual result. The price index of Women’s clothing was only 0.4 per cent higher that the lowest levels in 25 years.

What does it all mean?

• Parts of global economy continue to worry about the deflationary threat from sluggish growth and sliding oil prices. But here in Australia inflation is healthy without being excessive. In fact it is a Goldilocks situation – not too hot, not too cold, but just right!
• It is pretty clear that inflation is not a threat to the domestic economy, meaning that the Reserve Bank can comfortably keep interest rates at exceptionally low levels over the medium term. Domestic inflationary pressures remain well contained and given the slow growth in wages it is unlikely to result in a change to the domestic inflation landscape.
• Interestingly despite the 7 per cent slide in the Aussie dollar over the September quarter, it did not have a significant impact on lifting imported inflation – at least, not yet. It is likely that the substantial slide in the oil price will help to offset the depreciation in the currency. In fact the fall in the petrol price was one of the main contributors to the subdued inflation result.
• Whichever way you cut it, inflation is not a threat to the economy and the Reserve Bank will not be feeling any additional pressure to move rates in any direction any time soon.
• The headline inflation measure rose by a tame 0.5 per cent in the September quarter, and while some of the underlying measures were mildly weaker, the annual growth rates remain well within the Reserve Bank’s 2-3 per cent target band. The average of the three key underlying inflation measures lifted by 0.5 per cent in the quarter to be up 2.4 per cent over the year.
• Looking across the contributors to inflation. It was interesting that housing played a significant part. Not only did prices for new dwelling purchases lift by over 1 per cent but property and rates charges rose by over 6 per cent. Somewhat confusingly, utility charges (which tend to rise in the September quarter) fell in the latest reading. More than likely this is a function of the carbon tax repeal in July.
• The Reserve Bank will comfortably continue with its rhetoric of “interest rate stability”. More focus will be paid to labour market conditions and retail activity in coming months. CommSec expects rates to remain on hold over the rest of 2014 and perhaps well into 2015.

What do the figures show?

Consumer Price Index

• The All Groups Consumer Price Index (CPI) rose by 0.1 per cent in seasonally adjusted terms in the September quarter. In original terms the CPI index rose by 0.5 per cent in the September quarter. The annual rate of inflation fell from 3.0 per cent in the June quarter to 2.3 per cent in the September quarter.
• Underlying measures of inflation were marginally weaker in the September quarter. The weighted median measure rose by 0.6 per cent in the quarter, with the annual rate holding at 2.6 per cent. The trimmed mean measure rose by 0.4 per cent in the quarter with the annual rate falling from 2.8 per cent to 2.5 per cent. The CPI less volatile items rose by 0.4 per cent in the quarter to be up 2.1 per cent over the year.
• The Bureau of Statistics noted: “The most significant price rises this quarter were for fruit (+14.7 per cent), new dwelling purchase by owner-occupiers (+1.1 per cent), property rates and charges (+6.3 per cent) and other services in respect of motor vehicles (+5.8 per cent). These rises were partially offset by falls, for electricity (–5.1 per cent) and automotive fuel (–2.5 per cent)”.
• Prices of tradables rose by 0.3 per cent in the September quarter, with higher prices for fruit and tobacco. The most significant offsetting falls in the tradable goods component was for automotive fuel. The tradables component rose by 2.0 per cent over the year to September.
• Prices of non-tradables rose by 0.5 per cent in the September quarter. Price increases were recorded fornew dwelling purchase by owner-occupiers and increases in property rates and charges. The most significant offsetting fall was due to electricity and water charges. The annual rate of non-tradables inflation fell from 3.1 per cent to 2.4 per cent in the September quarter. Tradable goods are those items whose prices are largely determined on the world market. Non-tradable prices are more affected by domestic economic conditions.
• The Consumer Price Index (CPI) is regarded as Australia’s premier measure of inflation. The CPI is published quarterly and measures price changes for a ‘basket’ of goods and services that dominate expenditure of metropolitan households. The “All Groups” index is the main focus, but other inflation measures are also published such as so-called ‘underlying’ measures. These include measures that abstract from price changes in volatile price items such as fresh food and petrol.
• The Reserve Bank aims to keep the headline inflation rate between 2-3 per cent over an economic cycle. If inflation is high and expected to rise, the Reserve Bank may elect to raise interest rates in order to constrain price pressures. Conversely, if inflation is low and expected to remain low, the Reserve Bank may elect to cut interest rates if it believes the growth pace of the economy is in need of strengthening.
• At present inflation is very much under control; Overall the latest result is likely to see the Reserve Bank comfortably remain on the interest rate sidelines. CommSec believes that interest rates are likely to remain on hold over the rest of 2014.
• The key will be how the labour market evolves. CommSec expects labour market conditions to improve over the medium term, as a lift in economic activity translates through to a pickup in employment. As a result we expect rates to rise but not until well into 2015.

Why is the data important?

• The Consumer Price Index (CPI) is regarded as Australia’s premier measure of inflation. The CPI is published quarterly and measures price changes for a ‘basket’ of goods and services that dominate expenditure of metropolitan households. The “All Groups” index is the main focus, but other inflation measures are also published such as so-called ‘underlying’ measures. These include measures that abstract from price changes in volatile price items such as fresh food and petrol.
• The Reserve Bank aims to keep the headline inflation rate between 2-3 per cent over an economic cycle. If inflation is high and expected to rise, the Reserve Bank may elect to raise interest rates in order to constrain price pressures. Conversely, if inflation is low and expected to remain low, the Reserve Bank may elect to cut interest rates if it believes the growth pace of the economy is in need of strengthening.

What are the implications?

• At present inflation is very much under control; Overall the latest result is likely to see the Reserve Bank comfortably remain on the interest rate sidelines. CommSec believes that interest rates are likely to remain on hold over the rest of 2014.
• The key will be how the labour market evolves. CommSec expects labour market conditions to improve over the medium term, as a lift in economic activity translates through to a pickup in employment. As a result we expect rates to rise but not until well into 2015.

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Among the countries where inflation has moderated, the majority are in the Eurozone, where inflation was forced down by euro appreciation, weak domestic demand and relative cost adjustments (see chart 1).

The currency’s more recent reversal will put some upward pressure on inflation over the coming year, but declining commodity prices, a weak economy and futher relative price changes will work in the other direction.

If the ECB wants to lift inflation out of the danger zone, it will have to follow Japan’s lead sooner rather than later. India and Indonesia are the only large emerging economies where inflation has declined significantly over the period.

Unlike Europe though, weaker inflation is a positive development that will relieve pressure on their central banks and make it easier to push through needed reforms. The recent plunge in oil and agricultural commodity prices will lower inflation further in the coming months, as energy and food prices make up more than 50% of their price baskets.

The countries where headline inflation has increased since mid-2013 fall into two main camps. In the first camp are Brazil, Russia and Turkey. All are plagued by the structurally high inflation that results from poorly designed product and labour market regulations, entrenched high inflation expectations and central banks that have paid insufficient attention to their inflation targets.

Turkey will benefit from the recent falls in commodities, but it is a mixed blessing for Brazil and Russia. While they will likely enjoy some moderation in headline inflation, both are net exporters of commodities and the resultant deterioration in their terms of trade will weigh on their already very weak domestic economies.

Meanwhile, inflation is likely on a long upward trajectory in the US and Japan. In the US, domestic inflation pressures are gradually building as labour market slack continues to erode. In Japan, the jump in inflation has been triggered by the April sales tax hike and the Bank of Japan’s massive policy stimulus, which has led to a 28% depreciation of the exchange rate over the past two years and a tightening in the labour market.

The post Global Outlook – Inflation decoupling appeared first on AdviserVoice.

• Retail trade rose by a larger-than-expected 0.6 per cent in June after a revised 0.3 per cent fall in May (previously down 0.5%). Annual spending growth rose from 4.9 per cent to 5.5 per cent.
• In the June quarter, inflation-adjusted retail sales fell by 0.2 per cent but grew by 3.1 per cent in the 2013/14 financial year – the best annual growth in six years.
• Strongest growth in the quarter was by “other retailing” including Florists and antique retailers (up 3.2 per cent), followed by “Hardware, building and garden supplies” (up 1.7 per cent), and “Liquor retailing” (1.1 per cent).
• Inflation well contained: The TD Securities-Melbourne Institute monthly inflation gauge rose by 0.2 per cent in July and stood 2.6 per cent higher than a year ago.
• Petrol prices slide: According to the Australian Institute of Petroleum, the national average Australian price of petrol fell by 3.3 cents per litre to 149.3 cents a litre in the week to August 3. The key Singapore gasoline price and national average wholesale (terminal gate) price have fallen to 8-month lows.
• Hiring again: Job advertisements rose by 0.3 per cent in July after rising 4.4 per cent in June.

What does it all mean?

• The latest economic data was certainly more upbeat than what we have seen in the last couple of months – particularly when it comes to retail sales. Retail sales rebounded in June, with job ads lifting, inflation benign and motorists enjoying some of the cheapest fuel prices in months.
• Aussie households have put concerns about the Federal Budget behind them and are getting on with life. In recent weeks consumer sentiment has lifted back to the levels that existed well over three months ago – before Budget concerns started to dampen Aussie spirits. The rebound in confidence is now translating through to a lift in spending. In fact discretionary (non-food) spending lifted by 0.7 per cent – the strongest result in five months.
• Aussie retailers have certainly faced their share of headwinds over the 2013/2014 financial year. However despite warmer winter weather, election uncertainty, and budget shocks, inflation-adjusted retail sales grew by 3.1 per cent in the 2013/14 financial year – the best annual growth in six years.
• Motorists certainly have no reason to complain at present. Not only are pump prices holding at a 16-week low, but the discounting cycle has been more prolonged, with petrol prices still falling 21 days after hitting the high point in the cycle. Such a sustained fall in fuel prices is unprecedented. Usually the discounting cycle lasts around 10-12 days, however this time petrol retailers have been passing on to motorists the savings from the recent slump in global oil prices. The key Singapore gasoline price and national average wholesale (terminal gate) price have fallen to 8-month lows.
• Inflation remains well and truly in check. The Reserve Bank is firmly on the interest rate sidelines and the rhetoric on interest rate stability is likely to stay. However given the ongoing concerns about the Australian dollar, and contractionary fiscal policy, it is very likely that the Reserve Bank strikes a dovish tone in the statement accompanying the anticipated “no change” interest rate decision tomorrow.

What do the figures show?

Retail trade – June month:

• Retail trade rose by 0.6 per cent in June after a revised 0.3 per cent fall in May (previously reported as down 0.5%). Annual spending growth rose from 4.9 per cent to 5.5 per cent.
• Non-food retailing rose by 0.7 per cent in June – the first increase in four months. Non-food retail spending is up 5.4 per cent on a year ago. Sales by chain-store retailers and other large retailers rose by 0.5 per cent in June after a 0.3 per cent fall in May and were up 5.7 per cent over the year.
• Sales rose in six of the eight states and territories, led by Tasmania (up 1.3 per cent), and followed by the Western Australia (up 1.1 per cent), NSW (up 0.9 per cent), Victoria (up 0.6 per cent), South Australia (up 0.5 per cent) and the Northern Territory (up 0.3 per cent). Sales fell 0.5 per cent in the ACT and were flat in Queensland.

Retail trade – June quarter:

• In real (inflation-adjusted) terms, retail trade fell by 0.2 per cent in the June quarter after lifting by 1.2 per cent in the March quarter. In nominal terms, retail trade rose by 0.1 per cent in the quarter.
• Strongest growth in the quarter was by “other retailing” including Florists and antique retailers (up 3.2 per cent), followed by “Hardware, building and garden suppliers” (up 1.7 per cent), and “Liquor retailing” (1.1 per cent).
• The biggest drop in sales in the quarter was recorded by “Newspaper & books” (down 3.8 per cent), followed by“other specialised food retailing” including butchers, fruit, bread and fish shops (down 3.1 per cent), and“Furniture, floor coverings, houseware, and textile retailers” (down 2.2 per cent)
• Retail inflation lifted just 0.2 per cent in the June quarter. Retail prices are up 2.2 per cent over the year. Prices of goods at “Supermarkets & grocery stores” rose 1.0 per cent, with prices at liquor retailers and takeaway food services both up 0.9 per cent. Prices at pharmaceutical, cosmetic and toiletry retailers fell by 1.9 per cent in the June quarter.

Petrol prices

• According to the Australian Institute of Petroleum, the national average Australian price of unleaded petrolfell by 3.3 cents a litre to 149.3 c/l in the week to August 3. The slide in prices reflects an easing towards the trough in the discounting cycle that exists in southern and eastern capital cities. The metropolitan price fell by 4.5 cents to 146.6 c/l, while the regional average price fell by 1.2 cent to 154.6 c/l.
• Average unleaded petrol prices across states and territories over the past week were: Sydney (down by 4.9 cents to 143.9 c/l), Melbourne (down by 5.8 cents to 143.5 c/l), Brisbane (down by 7.9 cents to 145.7 c/l), Adelaide (up by 2.3 cents to 152.9 c/l), Perth (down by 1.7 cents to 150.8 c/l), Darwin (unchanged at 173.0 c/l), Canberra (down 0.8 c/l to 155.8 c/l) and Hobart (down 0.2 c/l to 160.5 c/l).
• Today, the national average wholesale (terminal gate) unleaded petrol price stands at 139.9 c/l, down around 2.8 cents over the week and the lowest level in eight months.
• Last week the key Singapore gasoline price fell by US$3.35 or 2.9 per cent to an 8-month low of US$113.35 a barrel. In Australian dollar terms the Singapore gasoline price fell by $2 a barrel or 1.6 per cent last week to $109.95 a barrel or 76.70 cents a litre – also the lowest levels in 8½-months.
• Figures from MotorMouth show that petrol prices in Sydney, Melbourne, Brisbane, and Adelaide are still trending lower and have been sliding for an extended 21 days. Normally the cycle tends to last around 12-14 days, however the ongoing slide in global oil prices have allowed retailers to pass on further savings to motorists.

Inflation gauge

• The monthly inflation gauge rose by 0.2 per cent in July after a flat result in June. The annual rate of inflation fell from 3.0 per cent to 2.6 per cent.
• The underlying rate (trimmed mean) rose by 0.4 per cent in July. The annual rate fell from 3.0 per cent to 2.6 per cent.
• Excluding volatile items like petrol and fruit & vegetables, the inflation gauge fell by 0.1 per cent in July after a 0.1 rise in June. The annual rate of inflation fell from 2.5 per cent to 1.9 per cent.
• TD Securities noted that “Contributing to the overall change in July were seasonal price rises for gas and other household fuels (+5.0 per cent), property rates and charges (+3.4 per cent) and electricity (+1.7 per cent). These were offset by falls in water and sewerage (-13.0 per cent), clothing and footwear (-4.1 per cent), and alcohol and tobacco (-0.2 per cent). The price fall in “water and sewerage” was due to a rebate of $100 and a fall in water usage charge in Victoria.”

Job Advertisements

• Job advertisements rose by 0.3 per cent in July after a 4.4 per cent rise in June. Newspaper advertisements fell by 2.8 per cent in the month, however internet ads rose by 0.4 per cent. Job ads were up 4.2 per cent on a year ago. In trend terms, ads rose by 0.1 per cent, the ninth straight gain.
• The Bureau of Statistics’ Retail trade publication contains the most current readings on the performance of consumer spending. The ABS surveys 500 ‘larger businesses’ and 2,750 ‘smaller businesses’. Retail trade covers spending at a broad range of retail outlets but excludes both petrol and motor vehicle sales. A weak retail trade result may point to a slowing economy as well weighing on the share prices of listed retail stocks. But retail trade estimates can’t be assessed in isolation – it is important to look at the influences determining future trends in consumer spending, such as income, employment and confidence levels.
• 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.
• 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 Reserve Bank would be heartened by the recent lift in consumer confidence and resulting rebound in retail activity. Housing activity is no doubt supporting the overall lift in spending and will continue to absorb the weakness in mining investment.
• Overall the economy is on a solid footing and remains fundamentally sound. Given the low interest rate environment, rising share markets and the lift in home prices, the Reserve Bank is likely to be watching for an improvement in labour market conditions. We expect the Reserve to maintain a neutral stance, while keeping a close eye on the transition of growth from mining investment to other parts of the economy. The fiscal drag and uncomfortably high Aussie dollar will keep rates on hold over the next few months.

What is the importance of the economic data?

• The Bureau of Statistics’ Retail trade publication contains the most current readings on the performance of consumer spending. The ABS surveys 500 ‘larger businesses’ and 2,750 ‘smaller businesses’. Retail trade covers spending at a broad range of retail outlets but excludes both petrol and motor vehicle sales. A weak retail trade result may point to a slowing economy as well weighing on the share prices of listed retail stocks. But retail trade estimates can’t be assessed in isolation – it is important to look at the influences determining future trends in consumer spending, such as income, employment and confidence levels.
• 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.
• 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.

What are the implications for interest rates and investors?

• The Reserve Bank would be heartened by the recent lift in consumer confidence and resulting rebound in retail activity. Housing activity is no doubt supporting the overall lift in spending and will continue to absorb the weakness in mining investment.
• Overall the economy is on a solid footing and remains fundamentally sound. Given the low interest rate environment, rising share markets and the lift in home prices, the Reserve Bank is likely to be watching for an improvement in labour market conditions. We expect the Reserve to maintain a neutral stance, while keeping a close eye on the transition of growth from mining investment to other parts of the economy. The fiscal drag and uncomfortably high Aussie dollar will keep rates on hold over the next few months.

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Matt Walsh

Education costs have increased by 81 percent over the past 15 years* and have outstripped wages growth and inflation over the same period, research by Lifeplan Funds Management has shown.

With the recent Federal Budget announcing initiatives that cast doubt of the long-term future of the Gonski education reforms, and changes that will increase the cost of university fees, saving for education expenses is more important than ever.

Matt Walsh, head of Lifeplan, said that for many years, education costs have been one of the fastest-rising components of the ‘basket’ of goods used to measure CPI.

“Since March 1999, education costs have outpaced CPI by 83 percent, and have outpaced wages by 19.5 percent.

“Furthermore, while wages growth has historically kept pace with education cost increases, over the last year education costs have risen faster than wages, which is a worrying trend and one that parents should be aware of when considering their children’s education.”

Mr Walsh said that parents will need to actively plan for their children’s schooling if they wish to have the funds available to pay for fees, additional tuition or extra-curricular activities.

“This is particularly true of parents considering a private school education for their children, as private schools tend to pass on the full increase in their own costs through fees. With the proposed changes in the Federal Budget to the way university students will pay for their education, it seems likely that university fees will see similar increases in coming years.

“But even parents relying on the public school system may be taken by surprise at the amount they will need to spend to ensure their children have the books and equipment they require.

“Providing for a child’s education is an increasingly expensive endeavour, and likely to become even more so in the future if the education cuts proposed in last month’s Federal Budget are passed,” Mr Walsh said.

“Australia’s public education system is likely to become more expensive for parents, who will need to foot the bill for more and more of their children’s school activities and requirements. As funding for schools becomes tighter, parents will be expected to provide the finances for sports uniforms or musical equipment, or even laptops or iPads that are now becoming standard items.

“Rather than try to pay for such things out of day-to-day cashflow, families should consider putting money aside even before their child starts school, so they have a fund to dip into to help cover future education expenses,” Mr Walsh said.

“A basic education savings plan doesn’t need to fully cover all the costs of a child’s education from kindergarten to university, but can simply be treated as a way to help ease the everyday burden of those costs as they arise.

“That way, paying for a school excursion or a computer doesn’t become an unexpected financial problem,” he said.

*Source: ABS March 2014

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What does it all mean?

The post Biggest fall in home prices in over 5 years appeared first on AdviserVoice.

• Tame inflation: The Consumer Price Index – the main measure of inflation in Australia – rose by 0.6 per cent in the March quarter, below expectations for a lift of around 0.8 per cent. In seasonally adjusted terms the CPI rose by 0.5 per cent. The CPI stands 2.9 per cent higher than a year ago – the highest outcome since December quarter 2011.
• Underlying measures: The Reserve Bank monitors three measures to derive the underlying inflation rate. The trimmed mean rose by 0.5 per cent in the March quarter (2.6 per cent annual); the weighted median rose by 0.6 per cent (2.7 per cent annual) and the CPI less volatile items rose by 0.5 per cent (2.7 per cent annual). Overall, underlying inflation rose by 0.5 per cent in the quarter and around 2.7 per cent over the year. The Reserve Bank had previously indicated that it expected underlying inflation to be “close to 3 per cent over the year to June 2014.”
• The Bureau of Statistics noted: “The most significant price rises this quarter were for tobacco (+6.7 per cent), automotive fuel (+4.1 per cent), secondary education (+6.0 per cent), tertiary education (+4.3 per cent), medical and hospital services (+1.9 per cent) and pharmaceutical products (+6.1 per cent). These rises were partially offset by falls in furniture (–4.3 per cent), maintenance and repair of motor vehicles (–3.3 per cent), international holiday travel and accommodation (–2.4 per cent) and domestic holiday travel and accommodation (–2.4 per cent).

What does it all mean?

• At present inflation is not a threat to the economy, meaning that the Reserve Bank can comfortably keep interest rates at exceptionally low levels over the near term. However as the Reserve Bank has highlighted in recent commentary, the medium term outlook for inflation has certainly shifted higher and this is one likely reason that policymakers are no longer talking down the Aussie dollar and seem more comfortable with the Aussie holding between US90-95c.
• The headline inflation measure rose by a tame 0.6 per cent in the December quarter and this time round the even more closely-watched underlying measures suggested that inflation was well contained. The average of the three key underlying inflation measures lifted by a much more sedate 0.5 per cent in the quarter to be up 2.7 per cent over the year – well within the Reserve Bank’s 2-3 per cent target band.
• Interestingly, and somewhat surprisingly, domestic price pressures were the main driver over the quarter. Domestic price pressures lifted with non-tradable goods and services lifting by 0.6 per cent in the quarter mainly due to rises in electricity, education fees and medical and hospital services. Imported inflation lifted by just 0.4 per cent in the quarter and it is likely that, given the recent lift in the Australian dollar, imported inflation will continue to offset domestic price pressures.
• However, on a positive note, policymakers would be more comforted by the deflationary aspect of prices for market-determined services with prices falling 0.1 per cent in the quarter. It seems to suggest that the slower and weaker wage growth (which has been part of the economic landscape for the past year) is finally filtering through to a fall in prices for services.
• Whichever way you cut it, inflation is well and truly in check and ensures that the Reserve Bank can continue with its rhetoric of “interest rate stability”. More focus will be paid to labour market conditions in coming months. A lift in employment growth will give the Reserve Bank more comfort to gradually raise the cash rate towards year end. CommSec expects the first rate hike in the December quarter.

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Reserve Bank Governor Testimony

• The Reserve Bank Governor has delivered testimony to the House of Representatives Economics Committee.
• The Governor has delivered his clearest statement yet that the economy is lifting and the focus is now on ensuring that the inflation is contained, households don’t over borrow and, more importantly that growth is manageable.
• The clear sense from today’s testimony to the Parliamentary Economics Committee is that Reserve Bank officials are extremely comfortable with current settings. “We have signalled the likelihood, if the economy evolves more or less as expected, of a period of stability in the cash rate. As well as the low level of interest rates generally, a sense of stability should be of some help for businesses and households as they form their plans”.
• The tone and comments from the testimony is consistent with CommSec’s view that the cash rate will remain on hold until later in the year before lifting.

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RP Data Rismark Home Prices; Manufacturing gauge; TD Inflation Gauge

• 

  House prices rose for eighth consecutive month

  Home prices rose for the eighth consecutive month: The RP Data – Rismark Home Value Index reported that capital city home prices rose by 1.2 per cent in January to be up 9.8 per cent over the year.

• Total returns on capital city houses were up 14.7 per cent on a year earlier and units were up 13.3 per cent.
• Manufacturing contracts: The Performance of Manufacturing index fell by 0.9 points to 46.7 in January. Any reading below 50 suggests manufacturing is contracting.
• Inflation contained: The TD Securities-Melbourne Institute monthly inflation gauge rose by 0.1 per cent in January to stand 2.5 per cent higher than a year ago.

What does it all mean?

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Consumer price index

• Inflation lifts: The Consumer Price Index – the main measure of inflation in Australia – rose by 0.8 per cent in the December quarter, above expectations for a lift of around 0.4 per cent. In seasonally adjusted terms the CPI rose by 0.9 per cent. The CPI stands 2.7 per cent higher than a year ago.
• Underlying measures were higher: The Reserve Bank monitors three measures to derive the underlying inflation rate. The trimmed mean rose by 0.9 per cent in the December quarter (2.6 per cent annual); the weighted median rose by 0.9 per cent (2.6 per cent annual) and the CPI less volatile items rose by 0.6 per cent (2.6 per cent annual). Overall, underlying inflation rose by 0.8 per cent in the quarter and around 2.6 per cent over the year – lifting towards the higher end of the Reserve Bank’s target band.
• Rate cuts are off the agenda: The latest data closes the door on any further rate cuts. Financial markets see just a 3 per cent chance of a rate cut in February. The Aussie dollar lifted almost a cent to hold near US88.7 cents.

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