Traders kept the Aussie dollar ‘safe’ after yesterday’s flat Producer Price Index figures for the March quarter and ahead of the release later today of the Consumer Price Index for the same quarter.
The Aussie was around 83.32 USc last night after it eased from almost 83.70 USc in trading ahead of the PPI’s release.
Some economists were quick to say the PPI figures meant a good CPI was on the cards. It could be or it could not. Traders took the PPI news as meaning a rate rise was less likely.
The two series are not connected, although the final stage PPI does give you some idea of the price pressures manufacturers and those in the service sector find themselves under.
And that pressure was fairly muted, hence the flat final stage PPI and small increases in the intermediate (0.3%) and preliminary (raw materials) stages (0.1%).
The final stage PPI was unchanged in the quarter but rose 2.8 per cent over the year, according to the figures from the Australian Bureau of Statistics (ABS).
That was the smallest rise in almost three years and will help convince the Reserve Bank that pressure pressures in the wider economy have eased in recent months.
And, looking at the way the Aussie dollar has risen compared to the level in March, the RBA will take a punt on rates, unless there is some surprise in the CPI.
The Aussie rose 2.5 per cent against the greenback in the March quarter and is already three per cent higher in April.
Economists had expected the PPI to rise by 0.6 per cent over the three months ended March 31.
As we pointed out yesterday the rise in the value of the Australian dollar helped trim price pressures in the quarter (the clue was on Friday’s import and export indexes).
A 1.1 per cent drop in import prices helped produced the muted PPI result, the ABS said.
Economists are tipping a 0.6 per cent rise in the CPI in the March quarter, for an annual increase of 3 per cent.
What might cause some concern is the way the drought is showing up as a price moving factor, especially in the raw materials and intermediate stages.
These are the early stages in the producing process and the RBA will be watching to see where the pressures from price rises associated with grains, dairy products, beef and sheep, start semerging in the final stage next quarter.
They appear to be among the biggest drivers of domestic cost pressures while external cost pressures have disappeared thanks to commodity price falls and the impact of the currency
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So what did the ABS report? A lot of it is slightly technical but read it carefully, it gives you a good idea how the economy is going and handlingprice pressures.
From the picture painted there’s been a noticeable moderation of price pressures in most major industries.
But wages are a problem in the general construction sector and the business services sector is seeing the strongest price rises of all. Shortages of specialist employees seems to be a problem here.
Here’s what the ABS reported yesterday:
FINAL (STAGE 3) COMMODITIES
· The final (Stage 3) index remained unchanged in the March quarter 2007.
· The domestic component rose 0.1%, mainly due to price increases in building construction and other manufacturing. Partially offsetting these were decreases in other agriculture (bananas) and motor vehicles & parts.
· The imports component fell by 1.1%, due to price decreases for electronic equipment, industrial machinery, photographic and scientific equipment and tobacco products.
INTERMEDIATE (STAGE 2) COMMODITIES
· The intermediate (Stage 2) index rose 0.3% in the March quarter 2007.
· The domestic component rose 0.7%, mainly due to price increases for grain, sheep, beef & dairy cattle products, property operator and developers, some components of other agriculture, other business services & business management services. Partially offsetting these increases were decreases in prices for basic non-ferrous metals (smelted or refined) and metal ores.
· The imports component decreased 1.8%, due to prices falls for oil, fabricated metal products, petroleum, non-ferrous basic metals (shaped), electronic equipment and plastic products.
PRELIMINARY (STAGE 1) COMMODITIES
· The preliminary (Stage 1) index rose 0.1% in the March quarter 2007.
· The domestic component rose 0.5% mainly due to price increases for property operator and developers, grain, sheep, beef & dairy cattle products, some components of other agriculture, other business services & business management services. Partially offsetting these were decreases in basic non-ferrous metals (smelted or refined) and metal ores.
· The imports component decreased 2.3%, due to price falls for oil, non-ferrous basic metals (shaped), and petroleum. Iron and steel partially offset these decreases.
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MANUFACTURING INDUSTRIES PRODUCER PRICE INDEXES
During the March quarter 2007, the prices paid by manufacturers for material inputs increased by 0.1%, while the prices they received for their outputs decreased by 0.3%. The input price index increased by 3.6% through the year to March quarter 2007 and the output price index for the same period increased by 3.8%.
Price rises in domestic crude oil, flat rolled products of iron and steel, cattle and calves, nickel ores and concentrates and whole milk were recorded for the materials used in manufacturing industries. Price decreases for imported crude oil, copper oxides and iron ore mining provided offsets to the price increases.
The increase in the price of domestic crude oil was affected by weather conditions interrupting domestic supply of crude oil, while crude oil in the international market fell.
Lower prices received for refined petroleum products, non-ferrous basic metal products (shaped) and smelted copper, silver, lead and zinc w
