A solid pointer to today’s Consumer Price Index with a surprise easing in producer prices in the December quarter.
Economists had been expecting a rise of 0.1% at the final stage; instead we got a fall of 0.4% as price pressures were trimmed by the impact of the high Australian dollar, especially on the cost of imports.
The figures, from the Australian Bureau of Statistics, suggest today’s CPI will be lower than forecast, and that we could also see a small fall in the Reserve Bank’s own measures of cost pressures.
But it probably wont stop the central bank from lifting rates next year, not with China continuing to grow strongly and the gradual realisation that the Australian economy faces another large injection of income from booming prices and volumes for coal and iron ore.
The cost pressures seen in the September quarter, especially from government cost increases, seemed to vanish from Australian industry in the three months ending December 31.
In fact, thanks to the continuing strength of the Australian dollar, there’s a whiff of disinflation (not deflation) in the air.
That would be a partial reversal of the higher than expected September quarter CPI of 1.0% (1.3% for the year to September), which was driven by government price rises for gas, water and electricity in many states.
The median market forecast of the CPI is for the CPI to have risen by 0.4% in the December quarter 2009, for an annual rate of 2.0%, safely inside the RBA 2%-3% over time range.
But with those higher government charges still exerting some upward pressure at the preliminary and intermediate stages PPIs in the December quarter, and expectations of further charges to show up this quarter, the RBA will play safe and lift the cash rate to 4%, which is still below the long term trend of more than 5%.
The PPI figures from the Australian Bureau of Statistics show the fall in producer prices in the December quarter was in all stages: preliminary (-0.8%), intermediate (-09%) and final (-0.4%).
That compares to a rise of 0.1% for the final stage in the September quarter, which was something of a surprise, after falls of 0.6% for the intermediate and 0.5% for the preliminary stage.
Overall prices at the final stage fell 1.5% for calendar 2009, 6.5% for the intermediate stage and a huge 8.4% for the preliminary.
The ABS said that in the final stage the fall of 0.4% was "mainly due to price decreases in petroleum refining (-6.9%), electronic equipment manufacturing (-9.1%) and industrial machinery and equipment manufacturing (-2.5%)". It was partially offset by "price increases in other agriculture (+11.2%) and building construction (+0.3%)".
The ABS said the 0.9% fall at the intermediate stage was due "mainly due to price decreases in grain, sheep, beef and dairy cattle farming (-7.2%), iron and steel manufacturing (–6.6%) and petroleum refining (-3.6%)">
It was partially offset by "price increases in oil and gas extraction (+3.0%), metal ore mining (+4.0%) and electricity, gas and water supply (+1.8%) ".
And at the preliminary stage, the main drivers in the fall of 0.8% were "price decreases in iron and steel manufacturing (-6.7%), grain, sheep, beef and dairy cattle farming (-6.2%), basic chemical manufacturing (-5.1%) and petroleum refining (-3.4%)".
The ABS said that was "partially offset by price increases in oil and gas extraction (+3.0%), electricity, gas and water supply (+1.9%) and services to transport (+4.5%)".
The impact of the stronger dollar can be seen through the three levels of production.
That in turn was clearly seen in Friday’s import/export prices indexes which showed quite dramatic moves in the December quarter and in 2009.
The ABS said the Import Price Index fell by 4.3% in the December quarter and by a record 15.5% in the 12 months to December.
The Export Price Index fell 1.7% in the December quarter and a record 32.7% for the year.
But that was after a rise in the Import Price Index of 21.1% in 2008 (driven by the sharp fall in the value of the Australian dollar in the closing months of that year) and by a record 54.9% jump in the Export Price Index in the same year, which was also due to the impact of the dollar’s slide.
