PPI won't curb rate rise: economists

Australia’s producer price index (PPI) at the final stage of production rose 0.3 per cent in the June quarter, for an annual rise of 1.0 per cent, the Australian Bureau of Statistics reported on Monday.

This compares with a 1.0 per cent rise in the March quarter.

The figure is below market expectations, which were for a June quarter rise of 0.8 per cent and an annual rise of 1.5 per cent.

The PPI measures the movement in prices paid by businesses for goods before they reach the consumer.

“When I saw the headline, disappointing the market forecast, I thought ‘Oh, hang on’,” ICAP economist Adam Carr said.

“But when I went through the detail, the preliminary and intermediate stages, prices remained elevated. Upstream price pressures are going to continue to hit,” he said.

“I think (an August rate rise) will be sentiment-dependent and, assuming Wednesday’s consumer price index (CPI) comes in as I expect, they’ll be hard pressed not to move.”

Mr Carr told AAP last week he expected headline CPI to have grown at pace of 1.0 per cent in the June quarter for a year on year rate of 3.4 per cent.

The ABS data showed, at the intermediate stage in the June quarter, the PPI rose 0.9 per cent, while at the preliminary stage it rose 1.5 per cent.

Over the year to June, at the intermediate stage the PPI rose 0.6 per cent and at the preliminary stage it rose 1.2 per cent.

The current cash rate is 4.5 per cent following a series of rises by the RBA board between October last year and May 2010.

A 25 basis point rate rise following the board’s August 3 meeting will add about $50 a month to monthly repayments on a 25 year, $300,000 mortgage.

National Australia Bank senior economist David de Garis said that, because the PPI was below market forecast, it could provide some comfort to the central bank.

“Perhaps there is not quite as much inflation coming through, at least (at) the producers and manufacturing level,” Mr de Garis said.

“Obviously, that doesn’t cover quite a lot of the services industries from the consumer point of view, but it is not as high as expected.

“That is some mild comfort for the Reserve Bank going into next week.”

Mr de Garis said the RBA’s focus was on consumer inflation data, due on Wednesday, for its guidance on monetary policy.

“We did not see an overt acceleration, in this quarter at least,” he said.

“I don’t know if it would swing the case one way or the other.

“Obviously, a lot will turn on whether this CPI on Wednesday means the Reserve Bank will revisit its inflation forecasts.”

The ABS is to release the June quarter consumer price index (CPI) on Wednesday, July 28, at 1130 AEST.

SOURCE: Eoin Blackwell – Business Day


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