The Reserve Bank board meets later today and no change in the current interest rate level of 6.25 per cent is expected, although there’s a worry or two in some figures released in the last day or so.
Not enough to get the hands of RBA Gov. Glenn Stevens wiggling the controls on the great rate setting machine, but enough to have them peering quite closely.
In short, personal consumption is booming, personal consumption, corporate profits are solid, despite some fraying around the margins, the current account is a disaster (despite the highest terms of trade in 50 years) and inflation may be trying to sneak out from where it has been resting for the past six months.
Wages growth looks strong (that’s a major concern for the RBA) but only in mining (where it slowed in the last quarter of 2006) and construction (where it picked up sharply from less than trend growth in the third quarter). In the big job industries of retailing and services, wages growth is still modest.
After the sharp 0.9 per cent rise in retail sales (seasonally adjusted) in January analysts poured over them over the weekend and couldn’t find any weakness: indeed the Australian Bureau of Stats reported that on a trend basis, retail sales grew at a 0.4 per cent rate from November through January, which is solid growth.
It’s figures like that and the news that car sales grew around 8 per cent in February according to raw figures from the industry, which will give the RBA a reason to look more closely at personal consumption.
The TD Securities/Melbourne Institute latest inflation gauge is suggesting that inflation grew faster in February than in previous months, thanks to higher oil and petrol prices.
The two groups said their monthly inflation gauge rose 0.2 per cent in February following a flat result in January to be up 3.4 per cent in the 12 months to February, compared to an annual rate of 3.1 per cent in January.
The groups said that by their monitoring the annual inflation rate has been above the top end of the RBA’s target range of two to three per cent for almost a year: with an average annual rate of 3.5 per cent since last March.
Now that’s only a rough guide: it doesn’t have the precision of the ABS collection system or the number crunching and experience of the organisation’s resources: or the RBA’s second guessing and its long history of monitoring prices, but it is one of those snippets that should put you on guard.
Certainly, anyone driving around our cities and towns over the months would have noticed petrol prices rises: but you’d also have noticed how little noise they are generating compared to 2006. Are we that used to fuel at $1.23 a litre or more?
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Meanwhile more evidence that corporate profitability is not easing with company gross operating profit (in current prices) rising 2.5 per cent in the December quarter, seasonally adjusted, to be up 9.1 per cent over the year, according to ABS figures.
Economists had been expecting something around the same level, so not too much of a surprise but wages grew a little faster than expected.
But instead of mining being the major provider of profit growth, the ABS singled out manufacturing (up 3.5 per cent on a seasonally adjusted basis), wholesalers (up a similar amount) retailing up a massive 8 per cent in the December quarter and property and business services up 8.9 per cent in seasonally adjusted terms.
That is not the sign of an economy tottering towards a recession as some figures suggest.
Wages growth slowed significantly in mining increased sharply in construction (up 5.2 per cent in the quarter) but was below trend in most other industry groups.
Over the year from the last quarter of 2005 to the December quarter of 2006 profits grew 9.1 per cent in seasonally adjusted terms and wages grew 7.6 per cent (boosted by mining and construction and trend or lower for other groups).
Inventories fell 1.7 per cent over the same year, something that contributed to a bit of confusion during 2006.
In the December quarter of 2006 estimated business inventories (in seasonally adjusted chain volume terms), rose 0.1 per cent from the previous quarter to $104.835 billion.
Sales strengthened across the board in the quarter and it seems as though business conditions in the broader economy are moving away from being driven by inflation (as in 2006) to be running on improving conditions nand demand. Which should be good news for earnmings down the track.
But analysts had been forecasting a bigger rise in inventories, others wonder if Australian companies are now running tighter inventory levels with the three interest rate rises last year boosting the cost of working capital (not unless you are Woolworths where you have negative working capital).
There are a couple who wonder if Australian business is just uncertain about the outlook and playing safe.
