Inflation rise lower than expected, rates to stay on hold: Economy Roundup

The official inflation rate lifted by 0.4% during the December quarter, with annual growth reaching 2.7%, according to the latest figures from the Australian Bureau of Statistics, placing the figure well within the RBA’s 2-3% target band.

The figure is also below economists’ forecasts, which had predicted the CPI would rise by 0.7% in the quarter with an annual pace of 3%.

The mean CPI rose by 0.3% in the quarter and by 2.2% in the year, in the slowest rate in several years. The weighted median CPI rose by 0.5% in the December quarter, with an annual rise of 2.3%.

Prices for fruit and vegetables, travel and accommodation, fuel and houses were the most significant rises, while prices for pharmaceuticals, deposit and loan facilities, motor vehicles, audio, visual and computing equipment all fell.

CommSec chief economist Craig James said in a statement the super-low inflation reading ensures that interest rates will remain on hold.

“And given that interest rate settings are already restrictive it is looking likely that the next rate hike will not take place until well into the June quarter – especially given that there are parts of the economy like construction, manufacturing and the services sector going backwards.”

James points out that underlying inflation could fall even further given the recent softness in the economy, and that “it is encouraging that the broader inflation rate still remains low”.

“Provided retailers continue to discount and the benefits of the higher Australian dollar are passed through to consumers, the coming ‘fresh food shock’ shouldn’t lead to a lasting lift in inflation.”

Newcrest Mining downgrades production

Newcrest Mining has downgraded its full year production guidance for gold and copper saying the challenging operating environment presented by the floods in Queensland have impacted business.

Newcrest now expects gold production to be between 2.85m and 2.95m ounces, down from the previous guidance of 2.85-3.00m ounces. Copper is predicted to fall to the range of 75,000 to 80,000 tonnes down from 80,000 to 86,000 tonnes.

“Higher production was achieved at all sites except Mt Rawdon,” the company said in a quarterly production report.

“Extreme rain events and flooding on the east coast of Australia during December resulted in production at Cadia Valley being approximately 18,000 ounces lower than planned as access to the high grade zone at the base of the open-cut was impeded.”

Commonwealth Bank funds under administration lift

The Commonwealth Bank has said its funds under administration increased by 2% to $199 billion from the previous quarter due to strong investment returns.

Net flows for the quarter were $1.1 billion, with property leading the charge. Funds under management were up by 1.4% to $153 billion.

Shares down on CPI data

The Australian sharemarket has opened slightly higher this morning following a relatively solid performance in overseas markets.

The benchmark S&P/ASX200 index was up 29 points or 0.61% to 4815.4 at 12.15, while the Australian dollar remained flat at US99c following the inflation news.

AMP shares gained 0.6% to $5.20, while Commonwealth Bank shares also gained 0.6% to $52.65. ANZ gained 0.4% to $23.75 as Westpac rose 0.6% to $22.93.

IMF spies international GDP growth

The International Monetary Fund has said that global economic growth in 2011 will come in just under last year’s growth rate of 4.75%, managing director John Lipsky said in Paris.

“The fund’s report to be released tomorrow… (I can confirm) 2011 global growth is expected to be only slight slower than 4.75 last year,” he said.

“Emerging economies have represented the driving force of the post-crisis global expansion: strong domestic demand – buoyed by an accommodative policy stance and renewed inflows of foreign capital – has powered a very robust recovery, even providing some boost to advanced economies,” he said.

Wall Street gains on tech stocks

Strong performance in the tech sector overnight caused stocks to end higher overnight on Wall Street. The Dow Jones Industrial Average gained 108.68 points or 0.92% to 11,980.52.