– JUNE 2021 INSIGHTS BY THE CURVE TEAM –
- It is uncertain how sticky rising prices will prove to be. The different forces driving higher prices are relevant to determine whether it will be transitory.
- Supply side price pressures could prove both temporary and ongoing.
- Demand side price pressures are contingent on wage growth over the medium to long term.
- Wages remain the dominant factor that will determine the RBA’s decision on monetary policy.
- Central Banks will face a challenge if prices rise before wages increase.
Australian Economic Highlights
- Australia’s GDP recovered to be above pre covid levels in Q1. The economy was 1.1% higher than last year following a 1.8% rise in Q1. Investment was the predominant driver in Q1, with a 5.3% rise, predominantly from dwelling investment fuelled by the HomeBuilder scheme. Consumption is now flat on last year’s levels.
- Inflation underwhelmed in Q1, up only 0.6% when 0.9% was expected. It leaves the annual rate at 1.1%, which will spike next quarter as the drop over Q2 last year induced by Covid is removed from the annual figure. HomeBuilder grants over Q1 contributed to subdued Q1 prices and is expected to wane on the index for some time as grants are received as projects begin.
- Unemployment declined in April from 5.7% to 5.5%, but the fall was driven by people leaving the labour force, not from increased employment. Employment was down 30 600 for the month, with part time employment down 64 000 and full time up 34 000. Cyclical factors, including the holiday period, were thought to have had an impact on the numbers rather than the end of JobKeeper.
- Another strong month for ANZ Job ads in May suggests the momentum in employment is still strong. Ads were up 7.9% from already high levels, which leaves them 38.8% higher than pre-covid.
- There were more record highs in the business survey, with business conditions up to 37 in May from 32. Business confidence on the other hand was down, but remains very high at 20. The survey remarkably includes when the Victorian lockdown had begun. The employment index was up to 25 from 20 but there remains little evidence of price pressures from the survey.
- and conditions for April broke the new records from March. Conditions are at 32 from 24 in March and confidence is at 26 up from 17 in March, which is staggeringly high. The employment index again improved, up to 22, which bodes well for minimising the impact of the end of JobKeeper. Evidence of prices increasing remains minimal though.
- Consumer confidence fell 4.8% in May to remain at a very high 113.1. Most promising was the 15.3% fall in the unemployment index, which bodes well with the end of JobKeeper. The lockdown in Victoria threatens both confidence and employment for future periods.
- Retail sales were up once again, rising 1.1% for April. Compared to April last year, when spending plummeted as the country went into lockdown, spending is up 25%. From February 2020 levels, which preceded both the drop in sales and the surge as people stocked up for lockdown, sales are still up nearly 12%.
- Housing finance remained strong over April, up 3.7%. This is 57% higher than pre-covid levels. Owner occupied loans were back to leading the gains, up 4.3%, while investor loans were up 2.1%.
- After net exports reduced the economy in Q1, the trade surplus improved in April. Exports were up 3%, with commodities driving the gains. Imports on the other hand were down 4%, leaving the surplus above $8 billion.
- The first month since the conclusion of HomeBuilder led to a 8.6% fall in dwelling approvals for April. However, there is nuance to the deadlines of the scheme, so it is hard to discern the impact of HomeBuilder ending. In fact, private sector houses were up 4.6% and overall approvals remain 39.2% higher than last year. After a surge in March, a steep drop in high-rise units led the falls in overall dwelling approvals.