The fall in petrol prices appears to have tamed concerns over the inflation outlook, but the Reserve Bank of Australia is yet to be convinced that price pressures have cooled.
While the RBA left the cash rate at a record low 0.1 per cent following Tuesday’s monthly board meeting, the word “patient” was notably missing from governor Philip Lowe’s statement in terms of the interest rate outlook.
He noted the annual inflation rate is already running at 3.5 per cent and the more policy-sensitive underlying measure is at 2.6 per cent, compared to the RBA’s two to three per cent target.
“Higher prices for petrol and other commodities will result in a further lift in inflation over coming quarters,” Dr Lowe said, noting important inflation and wage growth figures are due in coming months.
“The board will assess this and other incoming information as it sets policy to support full employment in Australia and inflation outcomes consistent with the target.”
KPMG chief economist Brendan Rynne says an interest rate rise could come as soon as July.
“But when the rate rise does come, future rate increases could happen quite quickly afterwards, to catch up for the long period of ultra-low rates,” Dr Rynne said.
Such warnings came as Prime Minister Scott Morrison attempted to take credit for the drop in petrol prices after last week’s budget temporarily cut fuel excise.
But economists say it’s more to do with a fall in global oil prices.
Mr Morrison, who will soon announce the election date, chose a petrol station in Sydney displaying unleaded petrol at 166.9 cents a litre to spruik his government’s economic credentials.
“Prices will still move around but what I do know is that they will be 22 cents a litre less than what they were otherwise be,” he said.
The halving of fuel excise was part of an $8.6 billion cost-of-living support package announced in the budget and came after petrol prices spiked above $2 a litre as global oil prices rose due to the war in Ukraine.
Labor has no intention of extending the cut in fuel excise beyond the legislated six months.
“If there is an incredibly compelling reason to leave it in, we would consider that,” shadow treasurer Jim Chalmers told the National Press Club.
“But to be up-front with Australians, no matter who wins government in May, it is likely that that petrol price relief will end.”
Dr Lowe made no mention of the budget in his statement.
The weekly ANZ-Roy Morgan consumer confidence index – a pointer to future household spending – rose 2.5 per cent after several weeks of decline.
Consumer inflation expectations also tumbled 0.6 percentage points to 5.8 per cent after setting a 10-year high last week.
“The fall in petrol prices is likely due to lagged effects of the drop in crude prices since March 8, which have declined by nearly 20 per cent since then,” ANZ head of Australian economics David Plank said.
“We think this explains much of the lift in sentiment, though the focus on relieving cost of living pressures in the federal budget may also have played a part.”
Meanwhile, Australia’s construction sector continues to grow, despite rising price pressures and difficulties in attracting and retaining skilled workers.
The Australian Industry Group/Housing Industry Association performance of construction index rose by a further 3.1 points in March to 56.5, building on the recovery from a sharp fall during the summer holiday period.
Colin Brinsden, AAP Economics and Business Correspondent
(Australian Associated Press)