Prices of imported goods rose in the December quarter, driven by the depreciation in the Australian dollar. Import prices rose by 2.5 per cent in the December quarter to by 4.7 per cent higher than a year ago. Higher prices were recorded for fuels & lubricants as well as footwear, apparel and clothing accessories.
The index of imported cars was just a touch above the lowest levels in decade. The cost of a Porsche 2.9 litre roadster has fallen by $2,500 in the past three years.
The index of imported electrical appliances fell by 0.2 per cent in the quarter and was holding at the lowest reading in records going back 20 years. Electrical appliances are 5.3 per cent lower than a year ago.
Prices of export goods fell by 1.5 per cent in the December quarter. Export prices are up 14.3 per cent on a year ago.
What does it all mean?
Import prices recorded a modest rise in the December quarter largely due to the depreciation of the Australian dollar, rise in global oil prices and the resulting pass through effect on domestic fuel prices. The rise in petrol prices isn’t great news for households.
Interestingly despite the rise in imported goods there were still pockets of goods that were cheaper. In fact the index of imported electrical appliances fell once again in the December quarter and is holding at the lowest level in records going back 20 years.
Consumers are not only enjoying cheaper prices for household electrical appliances but also for big ticket items. The index of imported cars is holding just above the lowest levels in a decade. In fact the cost of a Porsche 2.9 litre roadster has fallen by $2,500 in the past three years. The fundamentals for the car industry remain sound, car affordability is at the best levels since the mid 1970’s and once confidence levels pick up it is likely to translate through to stronger sales across the industry.
It should be noted that while there were modest price rises in other consumption categories like footwear and clothing accessories it is unlikely to lead a broad increase in consumer prices. Rather given the sluggish retail sales environment, retailers are more likely to absorb the modest costs and maintain discounting in an attempt to entice consumers. In addition retailers will continue to be pressured by the growing shift to online retailing especially given that the Aussie dollar has rebounded in the early part of 2012.
Importantly given the rise in imported prices business margins will continue to be squeezed and as a result businesses will be much more circumspect about hiring new staff in the current environment.
Looking forward a further fall in import prices cannot be ruled out. The Australian dollar has appreciated in recent times and import prices tend to respond to the movements in the Aussie dollar with a lag effect. In essence there are further cost saving to come, which will in turn, be passed on to consumers.
In simple terms, the ratio of export to import prices fell by 3.8 per cent in the December quarter. And while the actual terms of trade doesn’t line up with this measure precisely, it probably eased by a around 3.5 per cent in the quarter. The terms of trade story is no longer boosting incomes and should ensure the Reserve Bank has more scope to cut interest rates in coming months.
What do the figures show?
Import prices rose by 2.5 per cent in the December quarter. The rise was underpinned by a lift in the prices paid for petroleum, petroleum products and related materials (+5.5 per cent), articles of apparel and clothing accessories (+5.8 per cent) and machinery specialised for particular industries (+4.1 per cent). These were offset by falls in the prices paid for falls in the prices paid for non–ferrous metals (–8.9 per cent) and inorganic chemicals (–12.6 per cent). Import prices are up 4.7 per cent on a year ago.
Nine of the ten broad import categories recorded price increases in the December quarter.
The index of imported consumer goods rose by 1.7 per cent in the quarter with rises in prices for textiles, clothing & footwear (up 5.2 per cent) and food & beverages (up 2.4 per cent). In annual terms import prices for consumer goods were down 0.1 per cent on a year ago.
Prices for household electrical items were fell by 0.2 per cent in the quarter to an index reading of 52.0 – marking the weakest reading in records going back 20 years. Over the year the price of electrical goods fell by 5.3 per cent.
The index of imported capital goods rose by 2.6 per cent in the quarter to be 3.0 per cent lower than a year ago.
The index of imported intermediate goods rose by 2.9 per cent in the quarter and prices are up 11.2 per cent on a year ago.
Export prices fell by 1.5 per cent in the December quarter, driven mainly by falls in the prices received for metalliferous ores and metal scrap (–4.5 per cent), non–ferrous metals (–10.6 per cent), cereals and cereal preparations (–7.3 per cent), and textile fibres and their wastes (–9.6 per cent). Export prices are 14.3 per cent higher than a year ago.
Three of the ten broad export categories recorded price falls in the December quarter.
What is the importance of the economic data?
The Australian Bureau of Statistics (ABS) provides quarterly estimates of export and import prices. The figures assist is gauging inflationary pressures in the economy.
What are the implications for interest rates and investors?
Despite the rise in the price of imported goods inflation should remain low over the medium term. The Aussie dollar has rebounded since the start of the year and if the gains are maintained over the next couple of months imported prices are likely to once again track lower. A low inflation environment should ensure that the Reserve Bank can focus on stimulating activity by cutting rates in the next few months.
Former Deputy Prime Minister and Treasurer – and the man named Finance Minister of the Year in 2011 – The Hon Wayne Swan reveals insights from his new book ‘The Good Fight’. (Broadcast Wednesday 27 August 2014.)