(25 January 2012 – Australia) As price pressures continue to ease, another official interest rate cut is looking more likely according to The Australian Bureau of Statistics’ December quarter producer price index (PPI).The index showed prices in the final stage of production grew by just 0.3 percent, less than the 0.4 percent predicted by economists, and featured a drop of nearly 22 percent in agriculture prices.
The annual PPI was 2.9 percent, which was within the Reserve Bank of Australia (RBA)’s 2 to 3 percent inflation target band, suggesting price pressures were benign.
Prices paid by business grew at their slowest pace in a year in the final three months of 2011, underpinning hopes that an all-important inflation report due later this week will be even softer than forecast.
If the consumer price index (CPI) data for the December quarter play out as expected, it will leave the door open for another interest rate cut when the RBA board holds its first meeting of the year on 7 February.
The outlook depends very much on how Europe shapes up.
If the European crisis is not sorted, for Australia that would mean unemployment going up, company profits going down, and the federal government’s predicted budget surplus in 2012-13 disappearing fast.