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Sunday 21

October, 201811:51 PM



Wholesale petrol at 4-year highs

Wholesale petrol at 4-year highs

The CoreLogic Home Value Index of capital city home prices fell by 0.6 per cent in September to stand 3.7 per cent lower over the year.

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01.10.2018 03:41 PM

Home prices recede; Strong manufacturing
Wholesale petrol at 4-year highs
Home prices; Manufacturing; Petrol prices

Home prices: The CoreLogic Home Value Index of capital city home prices fell by 0.6 per cent in September to stand 3.7 per cent lower over the year. The national home price index fell by 0.5 per cent in the month to be down 2.7 per cent over the year.

Manufacturing activity: The Australian Industry Group (AiGroup) Performance of Manufacturing Index rose from 56.7 points to 59.0 in September. The sector has been expanding – an index above 50 points – for the longest period since 2005.

Petrol price: The national terminal gate (wholesale) unleaded petrol price stands at 142.9 cents a litre today, up 0.6 cents over the week at 4-year highs (highest since July 2014). 

What does it all mean?

It is understandable why official interest rates have been stable for over two years. In short, there are no convincing reasons to either lift or cut rates. The manufacturing sector is experiencing its strongest expansion in 13 years. But home prices have softened. And petrol prices are rising, serving to boost headline inflation.

Over the past year, home prices have lifted in four capital cities while prices in the other four cities have eased. It is clear that home prices are in correction mode across the country. Hobart prices are up over 9 per cent on the year while Sydney prices have eased by over 6 per cent.

Some analysts are working on the principle that inflation is dead. Meanwhile the index of input prices in the latest manufacturing survey is at 7½-year highs. Interest rates are steady for now but won’t be steady for ever. Add in the fact that petrol prices are still lifting and inflationary pressures are surfacing.

What do the figures show?
Home prices

The CoreLogic Home Value Index of capital city home prices fell by 0.6 per cent in September to stand 3.7 per cent lower over the year. The national home price index fell by 0.5 per cent in the month to be down 2.7 per cent over the year

In capital cities, house prices fell by 0.7 per cent in September and apartment prices fell by 0.2 per cent. House prices were down 4.3 per cent on a year ago and apartments
were down by 1.7 per cent.

In regional areas, home prices were down by 0.2 per cent in September, but were still up 1.2 per cent on the year.

The average Australian capital city house price (median price) was $683.437 and the average unit price was $564,290. 

Dwelling prices fell in five of the eight capital cities in September. Home prices fell in Melbourne (0.9 per cent); Perth and Sydney (both down 0.6 per cent); Darwin (down 0.4 per
cent) and Adelaide (down 0.2 per cent).

Prices rose in Hobart (up 0.4 per cent), Canberra (up 0.3 per cent); and Brisbane (up 0.2 per cent).

Home prices were higher than a year ago in four of the eight capital cities in September. Prices rose most in Hobart (up 9.3 per cent); Canberra (up 2.0 per cent); Brisbane (up 0.8
per cent); and Adelaide (up 0.7 per cent). Prices fell in Sydney (down by 6.1 per cent); Darwin (down 3.7 per cent), Melbourne (down 3.4 per cent); and Perth (down by 2.8 per cent).

Total returns on capital city dwellings rose by 0.6 per cent in the year to September with houses down by 1.5 per cent on a year earlier and units up 2.2 per cent. Returns on homes
nationally are up by 0.7 per cent. 

Manufacturing Purchasing Managers’ Indexes

The Australian Industry Group (AiGroup) Performance of Manufacturing Index rose from 56.7 points to 59.0 in September. The sector has been expanding – an index above 50 points – for the longest period since 2005.

The input prices sub-index rose to the highest level since March 2011. The new orders index rose by 3.0 points to a six-month high of 62.6 points.

AiGroup noted: “Five of the eight sub-sectors in the Australian PMI® expanded in September (trend). Expansions were stronger in the food & beverages, non-metallic minerals and wood and paper products sectors. The smaller ‘printing and recorded media’ sub-sector contracted, while the ‘textiles, clothing & other manufacturing’ and the chemical products sub-sector were broadly stable. Recovery in the chemicals sub-sector has been slowing in recent months with many respondents reporting that rising oil prices were putting upward pressure on input costs.”

“The average wages sub-index continued to rise in September, increasing by 4.6 points to a record high of 69.3 points. This indicates a higher proportion of businesses are facing wage increases across manufacturing. The average wages sub-index has accelerated above the long-run average of 59.1 points in the last three months. This might reflect wage increases linked to this year’s minimum wage increase of 3.5% (from 1 July 2018) making their way through Australia’s system of industrial awards and agreements.”

Petrol prices

Today, the national average wholesale (terminal gate) unleaded petrol price stands at 142.9 cents a litre, up by 0.6 cents over the week to 4-year highs. The terminal gate diesel price stands at 147.0 cents a litre, up by 1.8 cents over the past week.

Last week the key Singapore gasoline price rose by US$1.95 to four-month highs of US$91.55 a barrel. Prices are at 4-month highs and just off 4-year highs. In Australian dollar terms, the Singapore gasoline price rose by $3.96 or 3.2 per cent last week to a 4-year high of $126.77 a barrel or 79.73 cents a litre.

MotorMouth records the following average retail prices for capital cities today: Sydney 158.3c; Melbourne 162.6c; Brisbane 149.9c; Adelaide 142.8c; Perth 147.5c; Canberra 162.0c; Darwin 157.3c; Hobart 160.8c.

What is the importance of the economic data?

The CoreLogic Hedonic Australian Home Value Index is based on Australia’s biggest property database. Unlike the ABS Index, which excludes terraces, semi-detached homes and apartments, the CoreLogic Hedonic Index includes all properties. Home prices are an important driver of wealth and spending.

The Australian Industry Group compile the Performance of Manufacturing Index and Performance of Services index each month. CBA and Markit also compile purchasing manager surveys for manufacturing and services sectors. The surveys are amongst the timeliest economic indicators released in Australia. The surveys are useful not just in showing how key sectors are performing but also in providing some sense about where they are headed. The key ‘forward looking’ components are orders and employment.

What are the implications for interest rates and investors?

The on-going lift in petrol prices has the potential to crimp consumer spending. At the same time, with unleaded petrol and diesel prices rising, there is upward pressure on transport costs, potentially affecting prices with a high transport component like fresh food.

Investors should watch trends in the labour market and manufacturing for guidance on inflationary pressures and the outlook for interest rates. At present CommSec doesn’t expect a change in the cash rate until later in 2019

Returns on shares and residential property ebb and flow over time. At present the sharemarket is in the ascendancy with total returns up almost 15 per cent over the year versus flat returns on housing.

Published by Craig James, Chief Economist, CommSec
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