Australia | Oct 22 2007
By Rudi Filapek-Vandyck
Today’s release of the Index of Producer Prices in Australia for the September quarter has provided another stepping stone for the case of an imminent rate hike by The Reserve Bank of Australia, economists say.
Against market expectations of a PPI rise by 0.9% over the quarter, the release by the Australian Bureau of Statistics revealed the price burden for producers actually rose by 1.1% over the three months to September, lifting the PPI to 2.4% for the past twelve months.
Economists at Westpac responded by pushing up their consumer price forecast which will be released later this week from 0.87% to 0.9%. If accurate, this is widely thought to be the last straw for the RBA to raise interest rates next month, in the middle of the current Federal election campaign.
The key factor to watch in today’s PPI release is house construction output prices, Westpac economists point out. As today’s release revealed stronger than expected house construction output prices, rising 1.2%, this implies a rise in the CPI house purchase component of 1.2% against the economists’ previous assumption of a rise by 0.9% only.
ANZ economist Riki Polygenis agrees the increased input prices for Australian producers seems to be locally sourced only. ANZ hasn’t changed its forecast of a core CPI increase of 0.8% for the September quarter but Polygenis admits the risk now appears to the upside. That’s exactly the response of the colleagues over at CommBank who also decided to keep their 0.8% core CPI forecast unchanged.
Westpac now forecasts the September quarter headline CPI figure will print 1.2% (rounded off from their revised 1.15% forecast) from 1.13% previously.
Also, Westpac economists highlight the September PPI was particularly strong because non-core elements such as food and petroleum refining contributed less than the economists were expecting beforehand.
Regardless, the economists argue economic data are set to take a back seat for the next couple of sessions as another wave of risk aversion is wreaking havoc in global equity markets. The AUD is sitting close to key support at US$0.8820 and Westpac believes that a break of this level would likely send the Aussie battler spiraling lower.
If stocks continue to slide, says Westpac, the AUD is poised to suffer further losses in the short term even if inflation pressure is becoming more obvious in Australia.