Australian prices tumble on fuel, autos and food

Australian consumer prices tumble on fuel, autos and food

Jan. 28 – Australian consumer prices tumbled in the fourth quarter on sliding prices for fuel, vehicles and food, giving the central bank more room to cut interest rates as economic growth wanes.

The consumer price index fell 0.3% in the final three months of 2008, the weakest since 1997, according to the Australian Bureau of Statistics. That lagged behind the consensus forecast of 0.4% in a Reuters survey. Annual inflation was 3.7% versus a forecast 3.6%.

The drop in the inflation rate stokes prospects that the Reserve Bank of Australia will cut its benchmark rate on Feb. 3, following on from its New Zealand counterpart’s anticipated reduction tomorrow as global economic growth stumbles. Boral Ltd., Australia’s biggest building supplies company, today cut its 2009 profit forecast by 40%, citing weaker housing in the U.S. and Australia.

The Australian dollar fell to 66.16 U.S. cents from 66.63 cents before the figures were released at 11:30 a.m. Sydney time.

“With the RBNZ set to cut rates sharply and the RBA to follow with further action next week to combat severe downside risks to the economy, it is hard to see AUD pushing much above the 0.6750 level,” economists at Westpac Banking Corp. said in a report.

The Australian central bank has slashed its benchmark rate from 7.25% to 4.25% since the beginning of September and economists predict a further 100 basis points cut to 3.25% next week.

Fuel prices tumbled 18.2% in the latest quarter, the bureau said in its report. Motor vehicle prices dropped 2.4% and deposit and loan facilities fell 1.9%.

Westpac said the 2% rise in food prices was the biggest surprise relative to its forecasts for the latest quarter, exceeding its estimated 1.5% increase. Rents rose 1.8%, fruit jumped 8%, tobacco climbed 1.7% and takeaway foods rose 1.5%.

Australian consumer confidence fell this month, amid a rising jobless rate and a deteriorating economic outlook, adding to the case for the central bank to extend its interest rate cuts.

The Westpac-Melbourne Institute index of consumer sentiment fell 2.2%, or 2.1 points, to 89.9 in January, the first decline in three months. The index is down 12.8 percent from January last year.

(Businesswire)

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