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Tuesday 27

June, 2017 1:26 PM



Petrol prices to slide

Petrol prices to slide

According to the Australian Institute of Petroleum, the national average Australian price of unleaded petrol fell by 2.7 cents to 128.0 cents a litre in the past week.

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19.06.2017 03:34 PM

Petrol prices to slide; Luxury vehicle sales soften

Weekly Petrol prices; New Vehicle Sales

Petrol: According to the Australian Institute of Petroleum, the national average Australian price of unleaded petrol fell by 2.7 cents to 128.0 cents a litre in the past week. But the wholesale price stands at a 7-month low so prices are set to fall further.

New vehicle sales: The Bureau of Statistics (ABS) reported that new vehicle sales rose by 2.9 per cent in May – the fifth rise in six months. Annual sales of both sports utility vehicles (SUVs) and “other vehicles”, like utes, are at record highs.

CommSec Luxury Vehicle index: Sales of luxury passenger cars and sports utility vehicles (SUVs) stood at 103,895 in the year to May, down 2.6 per cent from the December 2016 record highs. Annual growth of luxury vehicle sales has fallen to 5-year lows.

Reserve Bank Governor: The Reserve Bank Governor has delivered upbeat comments but with a warning about the need to reform our economy. The car sales data provide perspectives on consumer spending as well as the auto sector of the sharemarket. Petrol is the single biggest purchase for most families each week so trends are important for retailers and other consumer-focussed stocks.

What does it all mean?

• Petrol is poised to get cheaper with the wholesale price in Australia (terminal gate price) already at a 7-month low, down by 5.5 cents a litre in the past three weeks. CommSec estimates that the average Australian price could fall by a further six cents a litre, saving motorists as much as $8 a month from the cost of filling their cars up with petrol. Filling up the car with petrol is the single biggest weekly expense for most households. So lower petrol prices represent good news for retailers – especially those marketing more discretionary goods and services.

• Luxury vehicle sales continue to slow. In the past there has been a close relationship between luxury marque sales and home prices. It is a trend worth watching.

• The Reserve Bank Governor continues to view the glass as “half full” rather than “half empty”. Philip Lowe noted on the global economy that “we are in a better position than we have been for some time”. And at home the Governor said “In Australia, it is likely that growth over the next couple of years will be a bit stronger than it has been recently.”

• The Governor though is no blue sky optimist: “Households are gradually coming to grips with slower growth in their real incomes. Growth in wages is unusually low, average hours worked have declined and the nature of employment is changing. So there is a recalibration of expectations going on. Many households are also coming to grips with higher debt levels and, in our largest cities, high housing prices.”

• And the Governor has delivered a warning to politicians: “The positive news is that there is no shortage of good ideas here. The not-so-positive news is that there is a shortage of good ideas that can successfully navigate the political process.”

What do the figures show?

New vehicle sales

• According to the Australian Bureau of Statistics (ABS), new vehicle sales rose by 2.9 per cent in May – the fifth gain in six months. Passenger car sales rose by 3.8 per cent and sales of sports utility vehicles rose by 4.1 per cent. But sales of “other” vehicles (includes utilities, panel vans, cab chassis, goods carrying vans, rigid trucks, prime movers, non-freight carrying trucks, and buses) fell by 0.6 per cent.

• New vehicle sales are up by 4.9 per cent over the year. Passenger car sales are broadly unchanged, while SUVs sales are up 7.1 per cent and “other vehicles” are up by 10.4 per cent.

• In rolling annual terms, 1,173,943 new vehicles were sold over the year to May. Sales of SUVs (446,740) were at record highs in annual terms, while annual sales of “other” vehicles also stood at record highs of 254,642. Sales of passenger vehicles rose from a 22-year low to 472,561 in the year to May.

• Across states and territories in May: NSW (up 1.3 per cent); Victoria (up 2.8 per cent); Queensland (up 5.0 per cent); South Australia (up 3.6 per cent); Western Australia (up 4.1 per cent); Tasmania (up 3.9 per cent); Northern Territory (up 4.0 per cent); ACT (up 1.6 per cent). 

CommSec Luxury vehicle index

• Sales of new luxury passenger cars and sports utility vehicles (SUVs) stood at 103,895 in the year to May, down 2.6 per cent from the December 2016 record highs. Still, annual sales of Mercedes Benz, Ferrari, Maserati, McLaren and Jaguar are all at record highs.

• The 17 luxury vehicle marques tracked are: Audi, Aston Martin, BMW, Bentley, Ferrari, Hummer, Jaguar, Lamborghini, Lexus, Lotus, Maserati, Maybach, Mercedes-Benz, Morgan, McLaren, Porsche and Rolls Royce.

• Luxury vehicles account for 11.30 per cent of all passenger cars+SUVs, down from the 11.50 per cent record highs in December. Three years ago luxury cars accounted for just 8 per cent of passenger cars+SUVs.

• Annual growth of new luxury vehicles has slowed markedly over the past year. In April 2016, annual growth was 19.7 per cent. In May 2017 it was just 0.8 per cent – the slowest growth in 59 months.

Petrol prices

• According to the Australian Institute of Petroleum, the national average Australian price of unleaded petrol fell by 2.7 cents to 128.0 cents a litre in the past week. The metropolitan petrol price fell by 3.7 cents to 127.3 cents per litre while the regional price fell by 0.7 cents to 129.3 cents per litre.

• The gross retail margin (pump price less terminal gate price) rose to a 3-month high of 16.38 cents last week (average 12.57 cents over the last year).

• Average unleaded petrol prices across states and territories over the past week were: Sydney (down by 8.0
cents to 124.2 c/l), Melbourne (down by 5.9 cents to 126.7 c/l), Brisbane (up by 7.0 cents to 138.5 c/l), Adelaide (down by 11.3 cents to 114.6 c/l), Perth (down by 2.7 cents to 124.5 c/l), Darwin (down 0.1 cents to 131.2 c/l), Canberra (unchanged at 129.7 c/l) and Hobart (down by 0.1 cents to 138.0 c/l).

• The national average Australian price of diesel petrol was down by 0.2 cents to 127.9 cents per litre in the week to June 18. The metropolitan price was down by 0.1 cents to 127.9 c/l, while the regional average price fell by 0.3 cents to 127.9 c/l.

• On Friday, the national average wholesale (terminal gate) unleaded petrol price stood at 110.5 cents a litre, down by 3 cents a litre over the week. The terminal gate diesel price stands at 108.1 cents a litre, down by 2.4 cents a litre over the week.

• Last week the key Singapore gasoline price fell by US$2.50 or 4.1 per cent to US$58.20 a barrel (lowest since November 18 2016). In Australian dollar terms the Singapore gasoline price fell by $3.91 a barrel or 4.9 per cent to $76.65 a barrel or 48.2 cents a litre.

• MotorMouth records the following retail prices for capital cities: Sydney 120.8c; Melbourne 124.8c; Brisbane 136.0c; Adelaide 109.7c; Perth 117.2c; Canberra 126.7c; Darwin 130.9c; Hobart 138.0c.

What is the importance of the economic data?

• Weekly figures on petrol prices are compiled by ORIMA Research on behalf of the Australian Institute of
Petroleum (AIP). National average retail prices are calculated as the weighted average of each State/Territory's metropolitan and non-metropolitan retail petrol prices, with the weights based on the number of registered petrol vehicles in each of these regions. AIP data for retail petrol prices is based on available market data supplied by MotorMouth.

• The Australian Bureau of Statistics provides seasonally adjusted and trend estimates of industry data. The Federal Chamber of Automotive Industries releases estimates of car sales on the third business day of the month. The figures highlight the strength of consumer spending as well as conditions facing auto & components companies.

What are the implications for interest rates and investors?

• The Reserve Bank Governor has delivered a wake-up call to politicians and businesses. We have done well, but we need to keep on reforming our economy if we are to extend the record-breaking expansion. Tax reform is one reform that comes to mind. But we need agreement from all sides of politics and that is the frustration.

• Petrol prices fell last week nationally and are set to slide further. In fact Adelaide motorists are already enjoying petrol prices below cost price (below the terminal gate price). Lower petrol prices represent good news for retailers and other consumer-focussed businesses. While motorists will not make substantial savings, lower prices on petrol signboards will boost confidence.

• When the top end of markets slow, this tends to be precursor of a similar slowdown across broader markets. Luxury vehicle sales are starting to ease from record highs. This may point to a slowdown in both new vehicle sales and home prices on past trends and relationships. At present though the broader new vehicle market is buoyant.

• CommSec expects no change to interest rates in the foreseeable future. 

Originally published by Craig James, Chief Economist, CommSec
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