Sunday, 22 April 2012

Producer Prices Fall

Final producer prices fell 0.3% in the March quarter after rising just 0.3% in the December quarter to be 1.4% higher than a year ago.
Producer prices give some guidance to future more general inflation pressures although the direct link to the CPI in the short run is not particularly strong.  That said, disinflationary producer prices are important for the overall assessment of inflation risks over the breath of the economy and the RBA obviously take account of such prices in assessing monetary policy risks.
Recent price data on the terms of trade last Friday and today for producers, are screaming for a move to accommodative monetary policy – and soon.  The terms of trade have fallen almost 10% over the last 2 quarters and now producer prices are weak and smashing below the expectations of the market and no doubt the RBA.
If the consumer price index tomorrow comes at expectations – 0.8% for the headline CPI and 0.6% for the underlying measure – a 50 basis point rate cut will be debated with gusto at next week’s meeting of the RBA Board.  If the CPI comes in lower than these expectations, a 50 basis point cut next week would seem prudent.
For the full article, click below:

No comments:

Post a Comment