Construction sector extends its recovery

CANBERRA, AAP – Australia’s construction sector continues to grow in the face of growing 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.

“Unless further disruptive factors intervene, it appears likely that current activity levels will continue over coming months, although the capacity to lift activity in the face of the supply pressures is becoming increasingly challenging,” Ai Group chief policy adviser Peter Burn said.

HIA economist Tom Devitt said strong housing market conditions continued to be reflected in the data almost a year after the end of the federal government’s HomeBuilder grants program.

The positive data comes ahead of the Reserve Bank of Australia’s monthly board meeting on Tuesday, where it is expected to keep the cash rate at a record low 0.1 per cent for another month.

However, economists will be raking over RBA governor Philip Lowe’s post-board meeting statement for any pointers on the interest rate outlook.

Some economists believe the May or June board meetings could be “live” for a rate hike and would follow the March quarter consumer price index figures due on April 27.

These are expected to show the annual inflation rate running well above four per cent compared to the RBA’s target of two to three per cent.

While conceding an interest rate rise is plausible this year, Dr Lowe has repeatedly said the board will be patient before moving and still wants to see a marked improvement in wages growth.

The meeting also provides the board its first opportunity to respond to last week’s pre-election federal budget.

The inclusion of an $8.6 billion support package in the budget at a time of already heated inflation has raised concern among some economists.

The weekly ANZ-Roy Morgan consumer confidence survey is also due on Tuesday and will capture the post-budget mood of Australians.

Confidence – a pointer to future household spending – has deteriorated to an 18-month low in recent weeks, hit by floods and rising cost of living pressures, notably the jump in petrol prices above $2 a litre.

Consumer inflation expectations have also spiked to their highest level since June 2012 at 6.4 per cent.

However, petrol prices have dropped sharply in the past week to below $2 a litre in most jurisdictions as a result of a big fall in global oil prices, coinciding with the cut in fuel excise announced in the budget.

The national average petrol price in the past week fell by a record 13.3 cents to 193.4 cents a litre, Australian Institute of Petroleum figures show.