Interest rate confusion as shock fall in job ads overshadows rise in inflation gauge: Economy Roundup

Mixed economic signals have put doubt on whether the RBA will go ahead with tomorrow’s widely anticipated interest rate rise. While a private gauge of inflation rose in January to levels that would worry the RBA, a shock fall in jobs advertisements will give the bank something to think about.

The TD Securities-Melbourne Institute inflation report said today the gauge had risen by 0.8% in January, equating to the largest increase in six months. It comes after two rises of 0.3% during the past two months.

While the annual rate of inflation remains at 2.6% – within the RBA’s target band – it is a substantial increase from October’s 1.2%. TD Securities said the factors contributing most to the increase were seasonal price rises, such as accommodation, travel, utilities and education.

However, these were offset by falls in prices for fruit and vegetables, furnishings and books.

“The inflation momentum appears to be picking up a head of steam as headline inflation has increased substantially for three consecutive months,” TD Securities senior strategist Annette Beacher said.

Beacher said the figures, combined with last week’s official CPI data from the Australian Bureau of Statistics, give good reason to expect a rate rise tomorrow.

“Combined with the news last week that core inflation was far stickier than the RBA expected, the RBA Board tomorrow can comfortably recommend another 25 basis point rate rise to 4.0%”

Additionally, a Reuters poll of 20 economists reveal all expect a 25-basis point rise to 4% tomorrow, with more rises spaced out over the coming year.

But there has been some bad news for the economy elsewhere, with the ANZ job ads survey falling by a seasonally adjusted 8.1% in January.

The number of ads fell to a weekly average of just 134,106 per week, with newspaper ads dropping 16.6% to a seasonally adjusted average of 8,796 per week. Internet ads fell 7.5% to an average of 125,310 per week.

“The monthly decline in job advertisements highlights the fragility inherent in the current recovery phase, but we should see more solid growth rates as we move further into 2010,” ANZ acting chief economist Warren Hogan said in a statement.

“In the near-term, the forward indicators appear positive for more employment growth through the first half of 2010, although probably at a slower pace than seen over the past four months.”

Hogan said there must be a net job growth of at least 30,000 during January in order to see the unemployment rate move from its current position of 5.5%.

Manufacturing on the rise

Meanwhile, the manufacturing sector recorded increased activity during January with increased demand for construction materials, transport equipment and coal products, according to the Australian Industry Group.

The AIG-PricewaterhouseCoopers Australia Performance of Manufacturing Index rose by 2.5 points to 51 – above the 50-point level separating expansion from contraction.

“While manufacturing made a relatively encouraging start to the year, the performance of key components remained patchy, with a rise in new orders broadly offset by a heavy run down in stocks and a decline in employment,” AIG chief executive Heather Ridout said in a statement.

“With output in the sector having fallen by 7.8% in the year to the September quarter 2009, and with around 80,000 jobs lost from the sector in 2009, a sustained upswing in manufacturing activity is needed to fill the large chunk taken out of the sector by the global economic downturn.”

ABS reveals 13.6% house price rise over 2009

The ABS has revealed the price index for established houses for the weighted average of Australia’s eight capital cities increased by 5.2% during the December quarter.

The main contributors were Melbourne with a rise of 6.8%, Sydney at 5% and Perth at 5.7%. Brisbane rose by 3.8%, Adelaide by 2.1%, Canberra by 3.6%, Hobart by 4.3% and Darwin by 4.9%.

However, over the year the price index rose by 13.6%, with Melbourne recording the largest increase of 19.7%. Darwin prices rose by 13.6%, Sydney by 12.8%, Canberra by 12.4%, Perth by 11.5%, Hobart by 11%, Brisbane by 10.9% and Adelaide by 5.1%.

Australian shares open flat

Meanwhile, the Australian sharemarket has opened flat today due to negative results on Wall Street late last week.

The benchmark S&P/ASX200 index was up 8 points or 0.18% to 4577.9 at 12.05 AEST, while the Australian dollar has continued its decline to US87c.

ANZ shares have gained 0.4% to $21.82, while Commonwealth Bank shares have also increased by 0.8% to $53.67. Westpac shares lost 0.1% to $23.84, as AMP lost 1% to $6.20.

Meanwhile, the Investment and Financial Services Association has said the Federal Government should increase the compulsory superannuation contribution guarantee to 12%.

IFSA chief executive John Brogden said the group’s third report on the superannuation savings gap showed the deficit had grown from $452 billion in 2004 to $695 billion.

“We are facing a disaster for retirement savings for Australia,” he told reporters.

Slot-machine manufacturer Aristocrat Leisure has said its full-year operating profit will beat forecasts by about 17%, despite taking a one-off charge of $187.3 million due to a lawsuit.

The company said operating profit of $116 million will beat analyst expectations, with the market expecting just $99.1 million.

DP World to spin off Australian assets, US deficit to rise

Overseas, port operator DP World, which is part of the Dubai World group, is now considering a $1 billion IPO by spinning off some Australian assets according to reports in the Australian Financial Review.

In the US, a source has told Reuters the White House will report a $US1.6 trillion deficit in the current financial year when the budget proposal is released later today.

Additionally, the White House will reportedly announce a fall to $US700 billion by the 2013 financial year, before rising to $US1 trillion by about 2020.