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Melbourne petrol prices lift; Used car prices up
Credit card lending falls; ‘Lowflation’
Petrol Prices; Used car prices; Private Sector Credit; Inflation

Fuel prices: The national average price of unleaded petrol fell by 3.3 cents to 118.9 cents a litre (c/l) last week according to the Australian Institute of Petroleum. Metropolitan prices declined 5.2 cents to 119.7c/l with regional prices up by 0.7 cents to 117.4c/l.

Used car prices: Datium Insights reported that wholesale used car prices rose by 1.3 per cent in the past week after lifting 2.6 per cent in the prior week.

Lending: Private sector credit (effectively outstanding loans) was flat in October (consensus: +0.1 per cent), and was up 1.8 per cent over the year – the weakest annual growth in 10½ years.

Loans to households via credit cards fell from $29.42 billion in September to a 14-year low of $29.15 billion in October. Credit card lending is down by 22.3 per cent over the year.

Inflation: The Melbourne Institute inflation gauge rose by 0.3 per cent in November – the biggest gain in four months – to an annual growth rate of 1.4 per cent. The trimmed mean measure lifted 0.2 per cent to be up just 0.2 per cent over the year.

Movements in the petrol price can affect consumer spending, and in turn, prospects for retailers. Used car price data is useful in gauging activity levels in the motor vehicle market. Private sector credit figures have implications for finance providers, retailers, and companies dependent on business spending.

What does it all mean?

• Brisbane and Sydney are in the discounting phase of the retail unleaded petrol price cycle. Motorists should top up rather than fill up their fuel tanks this week as prices will decline steadily for the next week or two. Today, pump prices are averaging 125.7 cents a litre in Brisbane and 113.4 cents a litre in Sydney – down between 16 and 23 cents a litre from cycle highs in mid-November – according to real-time fuel app MotorMouth.

• But Melburnians should fill up their tanks. Average unleaded fuel prices have already lifted 11 cents a litre off cycle lows of 112.7 cents a litre on November 25 and are set to rise further before the weekend. Today, prices are still below 110 cents a litre around Maribyrnong, Avondale Heights and Keilor East. With lockdowns easing, Melbourne pump prices could jump as high as 150 cents a litre over the next week or so.

• Aussies are still hoovering-up used cars. Datium Insights Used Car Price index was around 30 per cent higher last week than January 1, 2020. According to Datium, “stock remains considerably low”, with clearance rates “still at historic highs.” Last week, prices of second-hand Toyota Hiace (up 11 per cent), Holden Colorado (up 4.7 per cent) and Toyota Kluger (up 4.7 per cent) rose most, reflecting strong demand for utes and family SUVs.

• Business credit growth remains weak with Aussie firms preferring to protect their balance sheets and pay down debt amid challenging business conditions. Political tensions with China are adding to the uncertainty, despite supportive Federal Government policy initiatives announced in the October Budget. While the economic outlook has broadly improved, Aussie firms remain reluctant to invest, spend and take on more loans. In fact, annual business credit growth hit 7-year lows of 1.4 per cent in October.

• Credit card repayments have also been a feature of the pandemic with higher household savings, falling household debt balances and lower outstanding credit card balances. Loans to households via credit cards fell from $29.42 billion in September to a 14-year low of $29.15 billion in October. Credit card lending is down by 22.3 per cent over the year – perhaps freeing-up households to increase retail spending ahead of Christmas trading.

What do the figures show?

Weekly petrol prices

• The national average price of unleaded petrol fell by 3.3 cents to 118.9 cents a litre (c/l) last week according to the Australian Institute of Petroleum. Metropolitan prices declined by 5.2 cents to 119.7c/l with regional prices up by 0.7 cents to 117.4c/l.

• Average unleaded petrol prices across states and territories over the past week were: Sydney (down by 12.1 cents to 121.6 c/l), Melbourne (down by 0.5 cents to 114.7 c/l), Brisbane (down by 6.8 cents to 131.3 c/l), Adelaide (down by 6.8 cents to 108.7 c/l), Perth (down by 0.4 cents to 116.0 c/l), Darwin (up by 0.2 cents to 115.8 c/l), Canberra (up by 0.3 c/l to 121.1 c/l) and Hobart (up by 0.1 cent to 123.1 c/l).

• The smoothed gross retail margin (2-month rolling average) for unleaded petrol rose from 17.25 cents to 17.78 cents (24-month average: 15.0 cents a litre).

• The national average diesel petrol price rose by 0.2 cents to 118.0 cents a litre over the past week. The metropolitan price also lifted 0.2 cents to 116.6 cents a litre and the regional price was up 0.2 cents to 119.1 cents a litre.

• Last week, the national average unleaded Terminal Gate Price (TGP) was up 0.2 cents to 102.5 cents a litre. The terminal gate diesel price rose by 1.6 cents to 103.8 cents a litre.

• Today, the average unleaded TGP stands at 103.9 cents a litre, up by 1.8 cents over the week. The terminal gate diesel price stands at 105.1 cents a litre, up 2.1 cents a litre over the week.

• MotorMouth records the following average retail prices for unleaded fuel in capital cities today: Sydney 113.4c/l; Melbourne 123.3c/l; Brisbane 125.7c/l; Adelaide 132.4c/l; Perth 105.4c/l; Hobart 123.2c/l; Darwin 115.8c/l; and Canberra 121.1c/l.

• Last week the key Singapore gasoline price rose by US$4.55 or 9.7 per cent to an 8½-month high of US$51.35 a barrel. In Australian dollar terms, the Singapore gasoline price rose by US$5.47 or 8.5 per cent to a 5-month high of $69.63 a barrel or 43.79 cents a litre.

Weekly used vehicle market – November 30, 2020

• Over the week to November 30, Datium Insights reported:

“Prices were up this past week (up 1.3 per cent) with ex-leases leading the increase (up 3.6 per cent)

Supply was up (up 2.3 per cent) with light commercials (up 18.6 per cent) seeing more availability

Clearance rates were also up (up 2.7 per cent) and are still at historic highs

Prices for top 15 traded vehicles were largely positive with the Toyota Hiace (up 11 per cent), Holden Colorado (up 4.7 per cent) and Toyota Kluger (up 4.7 per cent) seeing the largest increases Stock still remains considerably low.”

Private sector credit – October

• Private sector credit (effectively outstanding loans) was flat in October (survey: +0.1 per cent), but was up 1.8 per cent on the year. Annual growth of lending is at a 10½-year low.

• Housing credit grew by 0.3 per cent to be up 3.3 per cent on the year with owner-occupier housing credit up by 0.4 per cent (+5.4 per cent annual) and investor housing credit up 0.1 per cent (-0.3 per cent annual).

• Personal credit fell by 0.7 per cent to be 12.7 cent lower over the year – the biggest annual decline on record (since September 1976).

• Business credit was down by 0.3 per cent but was still up 1.4 per cent over the year (7-year low).

• The M3 money aggregate lifted by 0.7 per cent in the month to be up 12.3 per cent from a year ago – the strongest annual growth rate in 11 years.

• Broad Money also rose by 0.7 per cent to be up 12.1 per cent from a year ago – the strongest annual growth rate in 12 years.

• Loans and advances by banks grew by 2.2 per cent (record 40½-year low). Loans by all financial institutions were also up by 2.2 per cent (27½-year low).

• According to APRA, deposits by households at Authorised Deposit-taking Institutions (ADIs) rose by $9.6 billion in October or 0.9 per cent. Deposits are up 12.1 per cent on a year ago.

• Loans to households via credit cards fell from $29.42 billion in September to a 14-year low of $29.15 billion in October. Credit card lending is down by 22.3 per cent over the year.

Inflation – November

• The Melbourne Institute’s headline inflation gauge rose by 0.3 per cent in November – the most in four months – to be up 1.4 per cent over the year.

• The Reserve Bank’s preferred underlying inflation measure – the trimmed mean gauge – increased 0.2 per cent to be up just 0.2 per cent on the year.

What is the importance of the economic data?

• Weekly petrol prices data are compiled by ORIMA Research on behalf of the Australian Institute of Petroleum (AIP). National average retail prices are calculated as the weighted average of each State/Territory metropolitan and non-metropolitan retail petrol prices, with the weights based on the number of registered petrol vehicles in each of these regions. AIP data for retail petrol prices is based on available market data supplied by MotorMouth.

• Data analytics firm, Datium Insights, provides a weekly report on the used vehicle market. Datium Insights and Moody’s Analytics also compile a monthly wholesale used car price series. The data assists in gauging the strength of a key component of consumer spending and provides insights on the Autos and components sector of the sharemarket.

• Private sector credit figures are released by the Reserve Bank on the last working day of the month. Credit is separated into three categories – housing, other personal and business. Private sector credit is effectively the amount of loans outstanding in the economy. If growth in lending is strong then it suggests that credit from financial institutions is freely available, underlying demand for assets such as cars and houses is firm and that the price of credit (interest rates) is attractive.

• Melbourne Institute developed a monthly inflation indicator to give markets and policy makers a more regular update on inflation trends. Based on the ABS methodology for calculating the quarterly consumer price index, the Melbourne Institute Monthly Inflation Gauge estimates month-to-month price movements for a wide-ranging basket of goods and services across the main capital cities of Australia.

What are the implications for investors?

• Aussie fuel prices are beholden to developments in international crude oil markets. Last week the benchmark Singapore gasoline price hit 8½-month highs, implying a lift in imported refined crude costs for Aussie retailers. The US crude oil futures curve has strengthened to levels last seen in February due to a lift in demand in Asia, rising Middle East tensions and better sentiment as trader optimism grows for successful Covid-19 vaccines. The spread between the West Texas Intermediate (WTI) futures curve today and the WTI curve a month ago has flipped into ‘backwardation’ – reflecting short-term strength in oil prices and an improving market outlook.

• But while oil demand is currently running ahead of supply, partial lockdowns in Europe and the US could yet weigh on crude prices. And OPEC+ ministers couldn’t reach a pre-meeting agreement yesterday on whether to delay January’s oil supply increase. As it currently stands, Russia and Saudi Arabia will have an ‘arm wrestle’ on their hands trying to stop January’s 1.9 million barrels a day production increase with both the United Arab Emirates and Kazakhstan both resisting any agreement.

• The interest rate-sensitive housing market is responding to rock-bottom borrowing costs with owner-occupier housing credit growth picking up on the back of strong demand for home loans and a rebound in home prices. The value of home lending is expected by economists to grow by a further 2.5 per cent in October when the figures are released by the Bureau of Statistics on Thursday.

Published by Ryan Felsman, Senior Economist, CommSec