Australia | Aug 01 2007
By Chris Shaw
Both retail trade and balance of payments data for the Australian economy have been released today and the view of economists is both data do little to change expectations the Reserve Bank of Australia (RBA) will lift interest rates by 0.25% when it meets next week.
Retail trade for June increased 1.4% against market expectations of an increase of around 1.0%, though Commonwealth Bank economist Joseph Capurso notes the increase was not as large as it looks as it follows on from two relatively weak months.
ANZ Banking Group economist Amber Rabinov agrees, noting the data present somewhat mixed signals in that they confirm higher inflationary pressures and in particular upward pressure on food prices, but they also imply a loss of momentum in the economy given volumes were surprisingly weak.
Rabinov suggests this may lead to a soft GDP outcome when figures for the June quarter are released in coming weeks, while Capurso estimates today’s data could subtract 0.1% from the GDP outcome.
TD Securities global strategist Stephen Koukoulas suggests the data could strengthen further in coming months though as consumers will soon be feeling the impact of recent tax cuts implemented by the Federal Government. He also suggests the data show households and firms are continuing top spend freely despite rising inflationary expectations, which suggests monetary policy is still accommodating and the RBA can afford to increase rates.
Monthly trade balance data were also released and showed a widening of the deficit to $1.75 billion, an increase of $781 million from the previous figure and well above expectations of a deficit of around $1.15 billion.
Much of this can be put down to poor weather impacting on exports, which fell 3% overall thanks to a 6% decline in mining exports, while imports recorded a gain of around 1%.
Both Westpac senior economist Anthony Thompson and ANZ’s Dr Alex Joiner suggest the trade data should reverse itself in coming months as the week outcome for June was the result of temporary factors, with a boost in exports likely as conditions return to normal.
Commonwealth Bank senior economist Michael Workman suggests the gain in imports shows continuing strength in the domestic economy, though he expects the trade deficit will gradually decline in coming months.
CBA joins TD Securities in the view interest rates will go higher next week, the bank suggesting this is the RBA’s likely response to what are ongoing inflationary pressures.