Interest rates may remain stable until the end of the year following better-than-expected inflation figures.
A number of economist concur that the CPI figures released by the Australian Bureau of Statistics means that the RBA will almost certainly hold interest rates in August – and that this may well continue for fear of damaging the housing recovery.
“The June 2010 quarter update for the Consumer Price Index (CPI) came in lower than market expectations and offers no evidence of inflationary pressures getting out of hand,” said the Housing Industry Association’s chief economist, Dr Harley Dale.
“There is no need for a further rate hike to be announced next week or indeed at any time through the remainder of this year. It is appropriate that rates are kept on hold in light of mounting evidence that the new home building recovery will run out of steam and ongoing uncertainty regarding the post-stimulus trajectory of the domestic economy.”
The headline rate of inflation rose by 0.6% in the June quarter, with the full-year figure at 3.1%. That meant the RBA-adjusted rates sat at 0.5% for the quarter and 2.7% for the year – a fall from the March figures and well within the RBA’s inflation target.
BIS Shrapnel’s chief economist, Richard Robertson told Broker News that the CPI figures are ‘unequivocally good news’.
“The underlying rate for the last quarter was less than 0.7%, which was really the trigger for interest rate action. My guess is that the RBA won’t raise rates, especially with the ongoing economic uncertainty overseas. Putting up interest rates could also kill the recovery in housing, and that’s not something that the RBA wants to do.”
Property-related price rises were among the most significant increases in the quarter, with rents increasing by 1.1% and house purchases at 0.6%.
By Kevin Eddy- brokernews.
THE Chamber of Commerce and Industry WA has revised up its growth forecast for the state after a better than expected finish to the end of the 2010 financial year.
However, the business lobby group has warned the positive outlook for WA may be short-lived, with growing concern that the recovery in the global economy will not be as strong due to uncertainty in Greece, Portugal and other European countries.
In its latest quarterly snapshot of WA’s economy out today, CCIWA forecasts economic growth to reach 3.5 per cent in 2009-10, half a percentage point higher than previous forecasts.
“The new financial year has started with a bang for Western Australia with the economy tipped to fire on all cylinders,” CCIWA chief economist John Nicolau said.
“As the economy continues to power up, economic growth this financial year will increase by a further 4.5 per cent with all sectors to play an important role.”
The positive outlook for this financial year stems from projections that growth will be built on increased business investment and rising levels of household spending, which will reach 4 per cent this year and driven by the strong population growth the state is expecting.
“That will be good news for consumer driven sectors of the economy, such as retail and hospitality, which are currently struggling due to rising costs, particularly wages which will increase considerably under the new awards system,” Mr Nicolau said.
CCIWA also predicts the state’s unemployment rate to drop to 3.5 per cent by the end of 2010-11. Last week, the Australian Bureau of Statistics showed that WA’s jobless rate had slumped to a 17-month low of 4 per cent for June.
For 2012-13, CCIWA has stuck with its previous economic growth forecast of 6.25 per cent.
“Despite the positive outlook, some short-term risks have emerged for WA,” Mr Nicolau said.
“There’s growing concern that the recovery in the global economy will not be as strong as first expected as a result of the economic uncertainty in Greece and other European countries.
“And locally, higher interest rates and the rising costs for businesses and households have also shaken business and consumer confidence in the June quarter, which may also act as a handbrake to growth over the coming months.
“Despite these risks, the long term outlook for the WA economy remains positive.”
