Historic lift in inflation

The Melbourne Institute monthly headline inflation gauge rose by 1.2 per cent in July – the biggest monthly rise in 20 years. The annual rate rose from 4.7 per cent to a 19-year high of 5.4 per cent.

In July, ANZ job ads fell by 1.1 per cent – only the second fall in the past six months.

According to the Australian Institute of Petroleum (AIP), the national average unleaded petrol price fell by 11.2 cents to 181.7 cents a litre (c/l) last week. The wholesale price fell by 6.1 cents a litre last week.

What does it all mean?

The sharp rise in the monthly inflation gauge for July means that it is all but certain that the Reserve Bank will lift rates at least by 50 basis points tomorrow.

A sharply higher rate of inflation and a fall in job ads are certainly not the results that policymakers want to see. But it is still relatively early days in the ‘normalising’ process of lifting interest rates. We need a bit more time to assess the success or otherwise in lifting interest rates to slow the economy and bring inflation under control.

The price of crude oil, and, in turn, domestic prices of gasoline or petrol, is a key factor behind higher inflation rates across the globe. Only when oil prices settle will central banks have more confidence about a peak in inflation.

We are not there yet, but oil demand and supply are showing signs of becoming more balanced.

Pump prices have fallen for 42 straight days in both Sydney and Brisbane. So there is a risk that the petrol cycle could end soon with prices spiking as much as 20 cents a litre. But based on wholesale prices and normal margins, a ‘fair’ pump price is currently near $1.70-$1.75 a litre.

What do you need to know?

Global oil prices rose on Friday. The Brent crude price rose by US$2.87 or 2.7 per cent to US$110.01 a
barrel. And the US Nymex crude price rose by US$2.20 or 2.3 per cent to US$96.42 a barrel. Over the week
Brent rose 6.6 per cent and Nymex rose by 4.1 per cent.

All eyes are trained on Wednesday’s meeting of the OPEC+ group of oil producers. No change on
production quotas is expected. And while that decision may disappoint global central banks, even if there was an increase in quotas, it is perceived that few producers could lift supply to meet a higher production quota.

In the past week, the benchmark Singapore gasoline price rose by US$12.86 or 12 per cent. In Aussie dollar terms, the Singapore gasoline price rose by $16.11 or 10.4 per cent to a 3-week high of $171.40 a barrel or 107.8 cents a litre.

Before the spike last week, the Singapore gasoline price had fallen 46 Aussie cents a litre from recent highs. At the same time the daily Australia retail price has fallen around 44 cents a litre and the wholesale price has fallen by 43 cents.

According to the Australian Institute of Petroleum (AIP), the national average unleaded petrol price fell by 11.2 cents to 181.7 cents a litre (c/l) last week.

Metropolitan pump prices fell by 12.5 cents to 177.4c/l and regional prices fell by 8.6 cents to 190.4c/l in the past week.

The national average wholesale (Terminal Gate Price or TGP) petrol price fell by 6.1 cents last week to 159.0c/l. Today, the TGP remains near 159.0c/l.

The smoothed (2-month average) gross retail margin rose last week from 14.55 cents a litre to a 28-week high of 16.44 cents a litre (12-month average: 13.67 cents per litre).

MotorMouth records the following average retail prices for unleaded fuel today: Sydney 168.9c/l; Melbourne 176.3c/l; Brisbane 166.1c/l; Adelaide 155.9c/l; Perth 166.1c/l; Hobart 190.8c/l; Darwin 199.7c/l and Canberra 202.5c/l.

CommSec estimates that it is costing the average family $254.38 a month to fill up the car with petrol – below the recent record high of $297.50 a month in March. Despite recent falls in pump prices, it still costs around $33 a month more to fill up the car compared with the start of the year – seven months ago.
Job advertisements

ANZ job ads fell by 1.1 per cent in July after a downwardly revised increase of 1.4 per cent in June. Job ads are up 15.6 per cent on the year. Job ads hit 14-year highs in March and have hovered just below this peak in recent months.

Monthly inflation gauge

According to the Melbourne Institute, the monthly inflation gauge rose by 1.2 per cent – the most in almost 20 years – in July (since September 2002) with the annual rate lifting from 4.7 per cent to a 19-year high of 5.4 per cent (highest since August 2003).

The ‘underlying’ or trimmed mean inflation measure lifted 0.9 per cent in July – the most in 17½ years (since January 2005) – with the annual rate up from 3.0 per cent to 3.9 per cent.

Originally published by Craig James, Chief Economist, CommSec