• Petrol sales in the September quarter were the lowest for any September quarter in five years, as consumers and businesses focussed on cutting costs. Unleaded petrol sales totalled 2,873 mega litres in
  the September quarter – marking the weakest quarterly reading in 13 years.
• The Reserve Bank Assistant Governor Philip Lowe has highlighted the concerns about the limited amount of spare capacity in the economy, higher commodity prices and the resulting threat of inflation.
• In seasonally adjusted terms imports fell by 5 per cent in January. The slide in imports suggests that the recent spell of trade surpluses should continue, albeit at a more sedate level given the impact of the
  recent floods.

What does it all mean?

• The weakness in petrol sales in the September quarter of 2010 shows that consumers and businesses remain focussed on keeping costs down. Overall petrol sales recorded the weakest reading for a September quarter in five years. And more importantly unleaded fuels sales were at the weakest levels in 13 years. Added to which the purchase of E10 has risen exponentially.
• Despite more cars being on the road, fuel sales remain sluggish with sales down 1.3 per cent on a year ago – no doubt a further sign of the conservatism that is currently part of the economic landscape. While people are generally confident, they are also keen about saving a buck wherever they can, trimming car usage, and using cheaper variants of fuel such as E10.
• Interestingly premium unleaded petrol sales recorded a modest rise, which may be due to newer vehicles potentially requiring a higher octane fuel.
• In the past the Reserve Bank has highlighted concerns about tight labour capacity, and once again the Assistant Governor Philip Lowe has used the opportunity of a speech in Sydney to highlight the inflationary pressures developing from higher commodity prices and the limited spare capacity in the domestic economy
• As the global economic recovery gains traction it is likely that inflationary pressures will gain traction – particularly in the Asian region. The Assistant Governor noted that if the recent run in higher commodity prices gained traction it is likely that a swifter policy response maybe required.
• The labour market will continue to be a hot button issue for the Reserve Bank. In recent times Reserve Bank liaisons with businesses have suggested that access to labour is at comfortable levels. However as activity and investment ramps up in the second half of the year it is likely that labour shortages – particularly in mining and construction – will become more prominent.
• The Assistant Governor did highlight that the domestic economy is close to full employment. Importantly the anticipated surge in growth over the second half of the year is likely to result in further interest rate hikes as the central banks attempts to ensure inflationary pressures – particularly wage inflation – remains muted. Importantly if the jobs can’t be filled here skilled migration visa’s needs to be increased to allow Australia business the option of tapping foreign workers as needed. And while wage inflation has not been an issue in recent times, CommSec expects wages growth to be an indicator closely watched by the Reserve Bank over the coming year.
• Interestingly the Assistant Governor also warned that despite the current commodity boom it was important to factor in periods of volatility – with particular focus on China, where bouts of weakness was a possibility.

What do the figures show?

• Sales of automotive gasoline (unleaded, proprietary brand, lead replacement and E10) totalled 4654.6 megalitres in the September quarter, down 1.3 per cent on a year ago and the lowest September quarter result in five years.
• Unleaded petrol sales totalled 2873.7 megalitres in the September quarter, marking the weakest quarterly reading in 13 year (March 1997). Alternatively sales of E10 fuel jumped 51.4 per cent over the year to 772.9 megalitres.
• Other data out today shows that imports fell by 5 per cent in January, in seasonally adjusted terms Assistant Governor’s Speech
• “If these inflationary pressures were to intensify, a stronger policy response than seen to date would be likely, increasing the risk of a subsequent sharp slowdown in the region.”
• “This more cautious approach to spending could be quite long lasting, with households using the strong income growth to further improve their balance sheets.”
• “In putting together our forecasts, we have assumed a middle path, with the saving rate staying high, but consumption growth broadly matching income growth over the next couple of years. We will, of course, be looking very closely to see if this is how things evolve.”

What are the implications for interest rates and investors?

• The weakness in petrol sales is a further indicator of the inherent level of conservatism by households and the resulting cautiousness being shown by businesses. A period of interest rate stability is required to ensure that activity levels pick up in the second half of the year.
• The strength of the job market has potential to boost wage growth and therefore inflation. Fortunately at present, wage pressures are restrained, allowing the Reserve Bank to remain on the interest rate sidelines. Given the weakness in consumer spending and lack of activity in the near term CommSec expects the Reserve Bank to remain on the interest rate sidelines until May.

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