Australia | Apr 20 2007
By Greg Peel
Economists at ANZ suggest the 1.7% fall in the March quarter import price index, released by the Australian Bureau of Statistics today, bodes well for the domestic inflation outlook. Import prices are now down 3% for the past twelve months. However, this hasn’t affected ANZ’s expectation of a rate rise in May.
Fuel prices were lower in general over the March quarter compared to December, and a stronger Aussie dollar has served to keep a lid on the relative cost of imports. But while the Aussie continues to look strong, fuel prices were back on the rise as the quarter came to an end.
On the flipside, the export price index was flat for the quarter, leaving a 5.8% increase for the year. ANZ suggests this is not an indication that the commodity boom is over, particularly given yesterday’s Chinese GDP growth figure of 11.1%. Commodity prices have not peaked just yet.
While rural goods, particularly cereals and wool, were up in the quarter, coal prices were down. Iron ore and nickel were up, while copper and zinc were down. Today’s data imply Australia ‘s terms of trade will remain elevated in March, notes ANZ.
The import news might be good, but ANZ is tipping a 0.7% increase in both the headline and core CPI measures, released next Wednesday – a significant turnaround from the -0.1% figure in the December quarter. This figure will not sit well with the RBA, says ANZ.
On ANZ’s forecast, the headline CPI will reach 3.1%, which is outside the RBA’s comfort zone, and the core rate 2.9%, which is almost there as well. The RBA tends to focus more carefully on the core rate.
Contributing to a higher CPI will be seasonal effects of higher education fees, pharmaceuticals, alcohol and tobacco. The drought will also have affected increased food prices, net of the welcome correction in banana prices. Late rising petrol prices will also be felt.
ANZ believes the RBA was afforded a breather in December, as the CPI result came in lower than expected. But with a return to reality this quarter, ANZ is backing a 0.25% hike in interest rates in May, irrespective of lower import prices.