At its June Board Meeting, the Reserve Bank held the Cash Rate at 7.25% for the 3rd month in
succession. Minutes from the meeting show members considered a "rates-on-hold" decision as
appropriate given that, on current policy settings, the necessary moderation in demand growth (which
would act in the opposing direction of inflationary pressures) "was likely to occur". Members also noted
"considerable uncertainty in the forecasts for demand inflation". In particular, there was a tug-of-war
situation between moderating domestic demand (based on evidence such as flat retail sales, lower
housing and business credit growth, subdued business and consumer sentiment etc.) and upside risks to
already elevated inflation rates. Looking forward the RBA stated that should expectations of high
ongoing inflation begin to affect wage and price-setting behaviour, the outlook, and the stance of policy,
would need to be reviewed.
* Despite the interest rate rises over the past year - official and bank instigated - the level of defaults has
only increased marginally, from 1.07% to 1.31% in loans in arrears over 30 days in the March quarter.
This low increase supports the RBA comments that mortgage stress and loan defaults were at historic
lows despite interest rates at a 12 year high. The rate of delinquencies is low when compared with the
UK where the 90 days delinquency rate sits at 1.5%, compared to Australia’s rate of 0.4%.
* The May Westpac-Melbourne Institute monthly survey of consumer sentiment has seen an improvement
in May for the first time this year, up 2.7% from April. The index, however, still remains 27.6% lower
from one year ago. According to NAB’s business survey, although business conditions and confidence
remain at weak levels, the index for the prior held steady at +7 points while the index for the latter rose
4 points to -4 points.
* The Australian is set for a soft landing, according to the Organisation ofr Economic Cooperation and
Development (OECD). The OECD are forecasting GDP growth of 3% for 2008 and 2.75% for 2009. They
also state that slowing growth will help pull inflation down, through the RBA will have to stay vigilant in
interest rates, given strong export prices.
* New motor vehicle sales in Australia dropped 1.6% in May to 87,800 as declines in sales of SUV’s (-4.0%
to 17,000) and other vehicles (-7.8%) offset an increase in sales of passenger vehicles (+1.6%). In
annual terms, vehicle sales are up only 2.6%. The yearly trend has been on a broad decline since the
end of last year, when sales were running around an 11% pace. This slowing is similar to developments
seen in the rural sector and illustrates the broader slowdown in domestic demand.
* Petrol prices hit record highs during June with the national average reaching 161.4 cents a litre. On
average, a household is now spending $226 a month on petrol, up $56 in the past 8 months, according
to CommSec.
* Total spending by Australians on health rose by 45% in the decade to 2005-06, reaching $86.9bn, or
9%, of gross domestic product according to a report by the Australian Institute of Health and Welfare
titled Australia’s Health 2008. The report shows death rates from cancer, heart disease, strokes and
injuries have all fallen. Consequently, average life expectancy has risen to 81.4 years, second only to
Japan. Men and women who live to 65 can expect to now survive to at least 83 and 86 respectively.
* The ANZ’s job ads survey for May showed a 1.7% decline (up 9.5% year-on-year) as newspaper ads and
internet ads dropped by 13.7% and 0.7% respectively.
