Here’s something the Reserve Bank board meeting will look at and have a little shudder as it considers the size of the interest rate rise today.
The figures show that Australia’s resources boom is firmly on track, according to figures from the Reserve Bank.
And there’s every chance that the accelerating pace of the boom will get a lift larger than we have seen so far in a few months time when higher iron ore and coal prices start flowing through.
That’s if we can ship as much coal as we are able to: a good question given the port constraints on the East Coast.
Iron ore shipments from Western Australia won’t be too much of a worry as Rio Tinto and BHP Billiton complete major port expansions and mine upgrades this year and at least one new mine starts delivery ore to Chinese steel mills.
That worries the RBA, with iron ore prices expected to rise 65% and coal prices by a similar amount, or more, depending on the coal quality.
The Reserve Bank board will look at the February commodity price index today a bit more closely because it clearly shows an acceleration in commodity returns.
The Bank has worried about the boost to our terms of trade from higher iron ore and coal prices and the inflationary impact on the wider economy.
The RBA’s commodity price index clearly shows that the surge in returns on our commodity exports is rising faster than previously estimated.
The RBA said yesterday that preliminary estimates for February indicate that the Index rose by 4.1% in SDR terms, following an increase of 2.3% (revised) in January. The largest contributors to the rise in January were increases in the price of wheat, aluminium, copper and gold, partially offset by lower barley prices.
Wheat prices fell late last week, copper prices ended the month up sharply on January and gold and oil prices were higher at the end of the month than at the start.
In Australian dollar terms, the Index rose by 0.6% in February following an increase of 1.7% (revised) in January.
The sharp rise in the value of the Australian dollar in the closing 10 days of last month, and especially last week, from around 90 USc to close to 95 USc late Friday, trimmed the size of the increase last month in local currency terms.
The surge in oil, gold, wheat, copper and even lead and zinc prices would have seen a rise larger than January’s 1.6% rise had the value of the Aussie dollar remained steady.
The currency was back around 93.50 USc in Sydney late yesterday, down almost 1.5 USc from the high reached on Friday, but higher than the 90 USc level of early February.
