The Economy: Producer Prices Fall Ahead Of CPI Release.
April 24th 2012 – Australasian Investment Review – (AIR)
A surprise fall producer prices in the March quarter saw the dollar weaken and analysts trim some of their estimates for consumer price inflation, to be released later this morning.
Inflation has been given an even greater importance this time because of the way the Reserve Bank has linked it to the chances of an interest rate cut next Tuesday.
So the 0.3% fall in the final stage producer price index for the three months to March, instead of a rise of 0.5%, as suggested by economists, saw expectations for the CPI trimmed to around 0.5%.
Whether that is accurate remains to be seen because at times there’s little direct link between the CPI and the PPI.
The fall of 0.3% compares as well with a rise of the same amount in the December quarter. The annual rate fell to 1.4% for the Match quarter, down from 2.9% in 2011.
A rise of 0.5% in the headline CPI would give an annual rate of increase of 2.1%, comfortably at the bottom of the RBA’s 2% to 3% target range.
At the end of last week many economists were forecasting a 0.7% rise for the headline CPI.
The RBA uses its own measures to look at core inflation and it’s that reading the market will be focusing on today.
A rise of 0.5% in underlying inflation would mean a 2.3% annual rate for the quarter, before any revisions to previous quarters’ data.
Some idea of the weaker than expected PPI came in last Friday’s price indices for imports and exports.
The Australian Bureau of Statistics figures showed that prices of imported consumer goods fell to their cheapest level in 20 years, with the overall import price index dropping 1.2% in the March quarter, for an annual rise of 2.1%.
Export prices fell 7.5% in the quarter.
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