CPI rises 0.5% in December quarter as pressure grows for rate rise: Economy Roundup

The Australian consumer price index has risen above market expectations, with a 0.5% increase during the December quarter, according to the latest figures from the Australian Bureau of Statistics.

This latest increase places the annual rate of CPI growth at 2.1%, with the media market forecast expecting just a 0.4% increase.

The ABS reports the most significant prices for the quarter were 15.9% for fruit, 6.6% for domestic holiday travel and accommodation, 1% for housing purchase, 1% for rents and 2.1% for beer.

It also notes the most significant pricing falls were for automotive fuel at 2.8%, audio, visual and computing equipment at 7.1% and pharmaceuticals at 5.3%.

CommSec economist Craig James is tipping a rate rise at next week’s February RBA board meeting, but mainly because rates remain historically low.

“The relatively low inflation reading gives the opportunity to hold back from another rate hike next week. But with interest rate settings still low and economic growth expected to lift over the year, we tip the Reserve Bank to lift the cash rate from 3.75% to 4.00% next week.”

Meanwhile, the Westpac-Melbourne Institute leading index, which predicts the likely outcome of economic activity six to nine months in the future, was at 7.6% in November – above the long-term trend of 3%.

Westpac chief economist Bill Evans said in a statement that he continued to be surprised by the result, which represents the fastest reversal of the growth rate from -3.2% in June since the 1970s.

This sharp recovery in the growth rate is consistent with Westpac’s view of the economic outlook. In through the year terms we expect the growth rate of domestic demand to bounce back from around 1¼% in 2009 to 4¼% in 2010.

That will be supported by much stronger momentum in consumer spending (3¾% growth in 2010 from 2¼% growth in 2009); dwelling construction (17¼% from 0%) and business investment (3½% from –5½%).

Additionally, Evans also said the recovery in GDP will be subdued this year, with stronger imports performance likely to negate any gain in exports.

“The Reserve Bank Board next meets on February 2. The evidence from the Leading Index; the Westpac Melbourne Institute Index of Consumer Sentiment; the labour market; and recent trends in retail sales indicates that the Bank will be keen to move monetary settings back to a level where interest rates are no longer stimulatory for the economy.”

GUD allows Breville takeover bid to lapse

Meanwhile, GUD Holdings has allowed its $322 million takeover offer for Breville to lapse, after the Australian Competition and Consumer Commission decided to block the development.

“While we are surprised by the extent of the ACCC’s concerns and strongly disagree with the decision, GUD does not intend to challenge that decision, due to the likely significant cost and delay involved,” GUD chairman Clive Hall said in a statement.

In December, ACCC chairman Graeme Samuel said in a statement the proposed merger would stifle competition for smaller electrical appliances.

Meanwhile, Breville has announced an upgrade in its full year earnings guidance, with underlying earnings before interest, taxation, depreciation and amortisation expected to be between $43 million and $46 million.

The Australian sharemarket has opened lower today after Wall Street stocks fell due to investor fears over political concerns regarding Ben Bernanke’s re-election into a second term as Fed chairman.

The benchmark S&P/ASX200 index was down 82 points or 1.75% to 4635.3 at 12.10 AEST. Additionally, the Australian dollar also fell to US90c.

AMP shares have fallen 1.6% to $6.34, while Commonwealth Bank shares have dropped 1.1% to $54.55. ANZ declined 1.3% to $21.99, as Westpac lost 2.1% to $24.40.

BHP, Rio venture examined by EU

In the mining sector, BHP Billiton and Rio Tinto’s proposed $US116 billion iron ore joint venture is now being questioned by the European Union European Commission regarding antitrust concerns.

“The Commission will in particular examine whether the joint venture would have a negative affect on competition on the worldwide market for seaborne iron ore,” the EC said in a statement released on Monday.

“Three companies, Vale of Brazil, Rio Tinto and BHP Billiton account for most of the iron ore sold worldwide on a seaborne basis.”

Meanwhile, CSR has once again said it is committed to the demerger of its sugar and renewable energy business after it received another bid from the Chinese Bright Food Group.

In a statement to the Australian Securities Exchange, CSR stated there was a new correspondence from Bright Food restating an expression of interest in the firm’s sugar division.

“To avoid compromising the value creation potential of the demerger proposal and in light of the advanced state of the demerger process, the CSR Board is only willing to progress any transactions alternative to the demerger if such transactions have a sufficiently high degree of certainty as to value, timing and likelihood of completion,” it said in the statement.

Overseas, stocks fell on Wall Street due to uncertainty regarding Ben Bernanke’s confirmation as Federal Reserve chairman. The Dow Jones Industrial Average fell 2.79 points or 0.03% to 10,194.07.