Today (Wednesday) sees the release of the first top tier economic report for the March quarter – the consumer inflation data (CPI) – ahead of the release of the first quarter GDP figures in early June.
The CPI report and the producer and export price indices to be released on Friday, are not expected to contain anything alarming except that price pressures remain well-contained and lower than the Reserve Bank wants to see.
The March jobs data last Thursday also confirmed the labour market finished the quarter in better shape than when it started – the trend jobless rate eased to 5.0% from 5.1% in January and there were close to 50,000 new jobs created over the three months.
Market forecasts (and those from the RBA) call for a weak reading from the CPI – perhaps 1.7% against 1.8% in the December quarter. Anything lower than 1.7% will see a lot of talk from worry-worts about weak price pressures. Some forecasts put the figure around 1.5%, but petrol prices rose strongly in March.
That will not surprise the RBA seeing it has been warning now for the past six months that inflation in the first half of 2019 will be lower than previously thought because of lower petrol prices than a year ago and falls in government administered prices.
“Members agreed that inflation was likely to remain low for some time. Wages growth had remained low, there continued to be strong competition in the retail sector and governments had been working to ease cost of living pressures, including through their influence on administered prices. In these circumstances, members agreed that the likelihood of a scenario where the cash rate would need to be increased in the near term was low,“ the minutes of the RBA’s April board meeting, released last week, read.
The lower than forecast inflation this quarter will be due to lower petrol prices than a year ago, but they have now returned to levels seen in early 2018 so the inflation rate should perk up this quarter.
Job creation strengthened in March the annual growth rate picked up to 2.4% from 2.3% – comfortably above the 2.0% rate of the past two and a bit decades. That was also faster the 1.6% growth in the wider population.
And this has occurred with no real upward pressure on wages. The Wage Price Index for the March quarter will be released midway through next month.
The Australian Bureau of Statistics Labour Force report showed that 299,000 were created in the year to March. That was the highest annual total for more than six months.
The ABS said 21,000 new jobs were created in March, above market estimates (the more volatile seasonally adjusted figure was 25,700 jobs with the unemployment rate rising to 5% as the participation rate edged higher – which is another positive).
If inflation remains under 2% well into the rest of this year (on an underlying measure used by the RBA) then the RBA will be under pressure to cut rates, as the Minutes of the April board meeting said:
“Members also discussed the scenario where inflation did not move any higher and unemployment trended up, noting that a decrease in the cash rate would likely be appropriate in these circumstances.”
The RBA’s second Statement Of Monetary Policy for 2019 will be released on March 10, (8 days before the federal election), with a suite of updated economic forecasts – with those for growth, inflation, unemployment, wages and the terms of trade to be watched very closely.
