by Alan Thornhill
Australians may well be looking at some slightly startling figures on Wednesday.
Specifically, an inflation rate apparently below the Reserve Bank’s target range of 2-3 per cent, over the course of the business cycle.
This is indicated by predictions from Westpac economists, who now point to a “meek” rise of just 0.1 per cent in the Consumer Price Index in the December quarter.
That, in turn, would add up to a raw inflation rate of just 1.6 per cent for 2014.
But we shouldn’t get too excited.
After all, it’s not that “raw” figure that the Reserve Bank board will study, when it meets on Tuesday next week, to review interest rates.
The bank’s marker rate of 2.5 per cent is already at a historically low level.
But that hasn’t stopped weary retailers – still suffering the disappointment of slow Christmas sales – urging the Reserve Bank to cut that rate again.
Investors, of course, are already ahead of them.
When they saw Canada’s central bank cut that country’s interest rates recently, they immediately guessed that its example might be followed in Australia.
That speculation saw the $A slide below 80US cents, on world currency markets, for the first time in six years.
This didn’t escape the attention of Reserve Bank board members, who have been making no secret of their long-held belief that the $A is overvalued.
Retailers – and others – were dismayed when even a combination of low interest rates and falling fuel prices wasn’t enough to get Australians spending again.
They are now arguing – loudly – that all that must be bolstered by fresh interest rate cuts.
That, of course, is possible.
Once sceptical economists are slowly coming round to the view that there might well be one rate cut next week and a second, later this year.
But that is far from automatic.
Remember, always, that it is not the raw CPI figure that the Reserve Bank studies, when it reviews rates.
It is core inflation, a figure that the bank, itself, calculates.
That is likely to be about 2.3 per cent – a result that would be within the bank’s target range.
So if those board members do want to sit on their hands – yet again – they will be able to do so.
by Alan Thornhill
The $A slid below 80US cents overnight, before recovering this morning.
It was the first time since July 2009 that the $A had been below that mark.
The $A’s fall – and weak recovery – followed the European Central Bank’s announcement of a 1.1 trillion Euro stimulus package overnight.
That was intended to boost faltering European economies.
It led to a sharp rise on several overseas stock markets, including Wall Street, where the Dow Jones index rose strongly.
The $A’s position, though, had already been weakened by an unexpected decision of Canada’s central bank, earlier this week, to cut that country’s interest rates.
That led to speculation that Australia’s Reserve Bank might do the same, when its board meets on February 3, to review rates.
The Reserve Bank has been saying, repeatedly, over many months that it believes the $A is overvalued.
by Alan Thornhill
Many Australian farmers are enjoying big returns for their produce.
As usual, weather played a central part in their fortunes.
The Bureau of Statistics reported today that the value of livestock sold rose by 12 per cent, to $14.6 billion, last financial year.
It said the gross value of cattle and calf sales had risen by 11 per cent in that time to $8.5 billion.
Slaughter numbers had reached levels not seen since 1978-79.
The value of sheep and lambs sold, in that time, rose by 19 per cent to $2.6 billion.
The Bureau said widespread dry conditions had led farmers to turn large numbers of stock off their properties.
It said, too, that favourable winter conditions in Western Australia, had seen the gross value of wheat sales, last financial year, rise 7 per cent to $7.7 billion.
The good growing season had also allowed WA’s barley farmers to produce a bumper crop.
The gross value of that crop was $2.4 billion, a 19 per cent rise over that of the previous 12 months.
Weathercoast by Alan Thornhill
A novel on the murder of seven young Anglican Christian Brothers in the Solomon Islands.
Available now on the iTunes store.
Alan Thornhill is a parliamentary press gallery journalist.
Private Briefing is updated daily with Australian personal finance news, analysis, and commentary.
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