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Tuesday 3rd February 2015 - 5:17 pm
Comments Off on Cut “good news” Hockey

Cut “good news” Hockey

by Alan Thornhill

The Federal Treasurer, Joe Hockey, described today’s rate cut as “good news for families and small business.”

“This is the first interest rate cut in 18 months and will put an extra $750 a year into the pockets of a typical Australian family with a mortgage of $300,000,” Mr Hockey said.

“The cut comes on top of recent falls in the price of petrol – saving the typical Australian family around $80 per month compared with the middle of last year,” he added.

” While interest rate decisions are solely a matter for the RBA, the Government’s strong actions to fix the Budget are providing more room to move,” Mr Hockey said.

“This rate cut will help lift confidence and unleash the entrepreneurial spirit of Australians, which will lift growth and prosperity,” he added.

“So not only is the cut good for families, it is also good for small business.

“I urge the banks to immediately pass on this rate cut – across their customer base – including to credit card holders, mortgage holders and small businesses,” Mr Hockey said.

Labor also welcomed the cut.

The Shadow Treasurer Chris Bowen said it would provide some relief for Australian families who are now about $6,000 a year worse off as a result of the government’s May budget.

However Mr Bowen also noted that the the Governor of the Reserve Bank, Glenn Stevens, had warned that the economy “is likely to be operating with a degree of spare capacity for some time yet” and that economic growth is below-trend with weak domestic demand and higher unemployment.

“Since its first Budget the Abbott Government has helped fuel a collapse in business and consumer confidence which has damaged Australia’s economic prospects,” Mr Bowen said.

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Tuesday 3rd February 2015 - 3:58 pm
Comments Off on This cut has its risks

This cut has its risks

by Alan Thornhill

Analysis

The Reserve Bank put aside the spectre of a Sydney housing price boom today, and cut its marker interest rate by 25 basis points to just 2.25 per cent.

The cut is expected to flow into variable home loans interest rates – and it might boost home sales and house prices.

If passed on in full, it would cut repayments on a $300,000 mortgage by $44 a month.

The Housing Industry Association welcomed the cut, noting that it was the first since August 2013 and saying it provided an opportunity for the economy to grow.

However, the bank’s Governor, Glenn Stevens warned – as he announced this remarkable decision – that his bank is “working with other regulators” to assess and contain the economic risks that may arise from the housing market.

These are substantial.

Home prices in Sydney have risen by 13 per cent over the past year, while those in Melbourne jumped by 7 per cent.

In both cases, these rises are well above even Australia’s underlying inflation rate of 2.25 per cent.

On the Consumer Price Index, our inflation rate is even lower, at 1.7 per cent.

But the Reserve Bank chief left no doubt about why his board had acted as it has.

He described overall growth in domestic demand as “quite weak.”

“As a result, the unemployment rate has gradually moved higher over the past year,” he said.

Mr Stevens also noted that the $A had “declined noticeably” against a rising $US, but “less so” against a basked of currencies.

But he signaled that the bank is still not satisfied with that, saying the Aussie dollar is still “above most estimates of its fundamental value.”

He said that was particularly so, “given the significant decline in key commodity prices.

“A lower exchange rate is likely to be needed to achieve balanced growth in the economy,” Mr Stevens warned.

The $A duly obliged, falling from 78.1 US cents shortly before the bank’s decision was announced to 76.22US cents little more than an hour later.

Tuesday 3rd February 2015 - 6:43 am
Comments Off on Reserve Bank board to ponder a rate cut, but….

Reserve Bank board to ponder a rate cut, but….

by Alan Thornhill

The Reserve Bank board might cut its marker interest rate by 25 basis points, when it meets today.

And Westpac economists are predicting that it will do so.

However those at the Australian National University are urging the bank to keep rates on hold again, for the 19th successive month.

The bank’s decision is to be announced at 2.30 today.

The ANU’s Shadow Board says another decision to hold rates would help to stimulate Australia’s domestic economy, in the wake of lower global oil prices and a lower $A.

Its chairman, Dr Timo Henckel, said that while Australia’s economic outlook is uncertain, core inflation remains within the RBA’s target band of two to three per cent.

“The ANU Shadow Board continues to recommend with confidence that the cash rate be held at its current level of 2.5 per cent,” he said.

“Core inflation, a measure of inflation that excludes volatile items such as energy and food, currently lies at 2.1 per cent – within the official inflation target band,” Dr Henckel added.

“It suggests that the drop in energy prices does not call for an immediate reduction in the cash rate.”

“If the dollar remains below 80 US¢ for some time, exports, in particular the tourism and education sectors, should expand appreciably and boost domestic production,” he added.

Wednesday 28th January 2015 - 1:29 pm
Comments Off on Low inflation raises hopes

Low inflation raises hopes

by Alan Thornhill

Australia’s low inflation rate has boosted the hopes of the nation’s builders and shopkeepers.

The Bureau of Statistics reported today that inflation fell to 1.7 per cent in the 12 months to the end of December, from 2.3 per cent in the year to the end of September 2014.

The Housing Industry Association says this suggests that January interest rates will remain very low this year.

HIA senior economist, Shane Garrett, said: “Fewer price pressures in the economy mean that a policy of very low interest rates is both justified and necessary.

“This is against the backdrop of below trend economic growth and unemployment persistently above 6 per cent,” he added.

The Executive Director of the Australian Retailers Association, Russell Zimmerman, said retailers had kept prices low through discounting over the Christmas period.

He said the association is hopeful that competition in the supermarket sector will continue to put pressure on prices.

Wednesday 28th January 2015 - 12:11 pm
Comments Off on Inflation hits a historic low

Inflation hits a historic low

by Alan Thornhill

Australia’s inflation rate rose by just 0.2 per cent in the December quarter and by a bare 1.7 per cent in 2014.

These exceptionally low Consumer Price Index figures were published by the Bureau of Statistics today.

They might open the door for another rate cut, when the Reserve Bank board meets to review interest rates, next Tuesday.

However the bank – which aims to keep Australia’s underlying inflation between 2 and 3 per cent – over the course of a business cycle – makes its own calculations on inflation.

And both the Bureau’s trimmed mean inflation rate, of 2.2 per cent – and its weighted median rate of 2.3 per cent – are expected to be closer to the Reserve Bank’s underlying  rate – than its headline rate of 1.7 per cent.

We won’t see the bank’s underlying rate until next Tuesday.

Australia’s headline inflation rate had previously stood at 2.3 per cent in the 12 months to the end of September.

The Bureau noted that petrol prices had a significant impact on inflation, in its latest figures, with automotive fuel prices falling by 6.8 per cent in the quarter.

It said over-supply, in global markets, had seen unleaded petrol prices fall to just $1.17 a litre in December, the lowest level seen since February 2009.

However the Bureau also reported that the cost of domestic holiday travel and accommodation rose by 5.8 per cent in the December quarter, while tobacco prices rose 4.8 per cent and the average price of new homes – for owner occupiers – went up 1.1 per cent.

Food prices rose by just 0.1 per cent in the quarter and 2 per cent last year.

Clothing and footwear prices also rose by 0.1 per cent in the quarter, but fell by 1.5 per cent over the year.

Education costs were flat in the quarter, but rose by 5.2 per cent over the year.

 

 

 

Friday 23rd January 2015 - 12:45 pm
Comments Off on $A slides below 80US cents

$A slides below 80US cents

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.

 

 

Wednesday 21st January 2015 - 1:42 pm
Comments Off on Many farmers flush

Many farmers flush

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.

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Alan Thornhill

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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