Indicators open door to RBA cut, just not yet

May 6, 2013
The Age

Retail sales fell as job advertisements slid for the second consecutive month and inflation remained subdued, according to economic data released this morning.

Ahead of the RBA’s board meeting tomorrow, retail sales fell 0.4 per cent in March seasonally adjusted, below economists’ expectations of a 0.1 per cent rise.

Sales of clothing, footwear and personal accessories dropped by 4.2 per cent, while household goods slipped by 1.5 per cent. Other retailing, which includes pharmaceuticals and cosmetics, fell 1 per cent as department stores saw their sales ease by 0.1 per cent.

But food sales rose 0.8 per cent as more people ate out, with cafes, restaurants and takeaway food outlets enjoying a 0.2 per cent lift. Retail turnover rose 3.2 per cent for March compared to the previous corresponding month, the Bureau of Statistics data showed.

ANZ’s monthly job advertising survey found ads declined 1.3 per cent in April, after a 0.5 per cent fall in March.

Job ads remained higher than in late 2012, but remained 25 per cent below their last peak at the start of 2011.

“It is too early to conclude that job advertising has begun a renewed decline, though anecdotal reports suggest job advertising in mining and related construction activity continues to ease,” ANZ’s chief economist for Australia, Ivan Colhoun, said.

Inflation continues to be subdued, rising slightly in April, as the prices of fruits and vegetables rose while petrol prices fell, a private gauge has found.

Inflation rose 0.3 per cent in April, after a 0.2 per cent in March, the TD Securities–Melbourne Institute Monthly Inflation Gauge found.

The gauge rose 2.1 per cent in the year to April, within the Reserve Bank’s target band of 2 to 3 per cent.

Prices rose for fruits and vegetables, health and communication, but dropped for fuel, footwear, newspapers, books and stationery.

Tradables, goods that have prices determined on the world markets, fell by 0.2 per cent, while non-tradables, goods and services that have to be consumed where they are bought, grew by 0.6 per cent.
The raft of economic data released today could have an impact in the RBA’s decision to hold or cut the cash rate, which is at 3 per cent, tomorrow.

Continued soft economic data is pointing to an increased chance the central bank could lower rates for the first time this year.

Financial markets are pricing in a 52 per cent chance of a 25 basis points rate cut. At the same time, the majority of economists are taking a more cautious view and forecast June as the earliest month in which the RBA would make a move.

TD Securities’ head of Asia-Pacific Research, Annette Beacher, said she did not share the financial markets’ view that there was a 50-50 chance the Reserve Bank could slash rates tomorrow.

“Looking through market volatility, recent data flow supports leaving the cash rate at 3 per cent with an easing bias,” Ms Beacher said.

“We believe it is prudent to allow the RBA Board to pause and assess the busy data and event calendar over the next four weeks.”

Economists said the strongest case supporting a cut is low inflation.

‘‘Abstracting from the impact that the carbon tax had on the inflation measure, inflation should be running at the bottom end of the target band,’’ Macquarie economist Gabby Hajj, who supports lower rates, said last week.

‘‘The RBA is an inflation-targeting central bank and lower inflation tends to indicate slowing growth and slowing demand,’’ Mr Hajj said. ‘‘In our view, it provides the scope and the catalyst for [the Reserve] to cut in May.’’

NAB senior economist David de Garis said there have been questions about the strength of the housing recovery, which the RBA has said is central to filling some of the gap expected to be left by the peak in mining investment later this year.

Another factor that could push the Reserve to lower rates is the higher unemployment rate, Mr Hajj said. While the Reserve expects unemployment to gradually tick up towards 5.75 per cent this year, the current level – 5.6 per cent – is already close to that.

In contrast, Barclays’ chief economist Kieran Davies, who does not expect the Reserve to move on Tuesday, said it could point to improved activity in some sectors of the economy as a sign the earlier cuts were working.

”The housing market has picked up over the past year, house prices are off their lows of last year, consumer confidence is back above average and equity prices are also higher than last year,” Mr Davies said.