Now for a burst of disinflation (not deflation as some would have us believe) as the much anticipated fall in price pressures in the economy starts popping up in the official statistics.
The Reserve Bank and Treasury have been predicting that price pressures would ease as 2009 goes on from the impact of the slump in oil and related product prices, and the comparative effect with 2009’s surge.
The big imponderable was how much would the economic slide push prices down by suppressing demand, and would this be offset by the 20% plus slide in the value of the Australian dollar since last July. (And over 30% at the depth of the slump.)
Yesterday that easing in price pressures showed up in the Producer Price Index figures for the March quarter: that came after a larger than expected fall in the import price index for the March quarter which was released last Friday.
The PPI shows price pressures in the Australian economy eased in the March quarter for Australian businesses, helped by the slowdown in housing and lower petrol and oil costs.
The figures show a lessening in the surge seen last year, with prices at the final stage of production down in the March quarter by 0.4% (and up in the year to March by 4%).
That’s the lowest since the June quarter of 2003.
That’s a significant easing from the 1.3% rise seen in the three months to December 2008 and an annual rise of 6.4% at the final stage for 2008.
There’s now expectations that the Consumer Price Index might be a bit better than expected when released tomorrow.
Forecasts are for a rise of 2.8% on a headline basis in the quarter (or around 3.2% on a core basis).
Although there’s little in the way of correlation between the PPI and the CPI, the sharpness of the falls does suggest that price pressures are weaker than expected, thanks to the impact of the recession and the fall in energy prices.
The fall in the value of the Australian dollar hasn’t really boosted import costs either.
Figures out Friday from the ABS showed that the falling price for oil and associated products helped send the import price index down 3.6% in the March quarter to be up 14.6% over the year. Our Export index fell 4.6%, but was up 42% over the year to March.
The March quarter fall in the import price index was weaker than the 10.8% rise in the December quarter (21.1% annual); while the slump in export returns in the March quarter can be seen from the rise in the December quarter of 15.9%, and the annual rise of 54.9%.
The ABS said the fall in the final stage producer price index was "mainly due to price decreases in building construction (-1.6%), petroleum refining (-8.9%) and dairy product manufacturing (-4.9%)".
These were "partially offset by price increases in industrial machinery and equipment manufacturing (+5.4%) and tobacco product manufacturing (+12.8%)".
Producer prices fell at the intermediate and preliminary stage, but the fall in the final stage PPI in the quarter was much smaller than the 3.2% drop in the intermediate stage and the 4.6% fall in the preliminary stage.
This is expected to be a passing phase as higher government charges (especially for the gouging utilities like NSW government-owned power) show up later in the year.
The easing price pressure won’t have an impact on interest rate calculations.
Inflation is the last thing for the RBA to focus on at the moment: growth and unemployment are far more important.
