"The headline readings are certainly above expectations, the underlying readings are relatively more restrained"
- Savanth Sebastian, an economist at CommSec
Inflationary pressure in Australia looks to be building finally after remaining subdued for several month, as prices measured at the factory, farm or wharf gate soar more than expected in the September quarter, the Bureau of Statistics said Friday. The PPI, which measures the change in the price of finished goods and services that are sold by producers, rocketed 1.3% in the quarter, on the back of a 0.8% rise in domestic component, while imported parts inched higher 5.9%. It follows a 1.2% rise in the June quarter, while on a year-to-year basis wholesale inflation accelerated to 1.9%. The main downside pressure, however, came from agricultural producers, where prices fell 3.4%.
Higher producer prices is an early indication of when consumers will start to feel increasing inflationary pressure, as producers usually tend to pass on higher prices where it is possible. Though PPI is not the same as the increased profile of CPI, it can give some insight into the coming inflationary pressures. With both rising producer and consumer prices (1.2% in Q3), it could be a warning sing for policymakers of a risk that inflationary expectations may come to be factored into price and wage decisions, causing overall inflation rate to ratchet higher. That would make the central bank more reluctant to cut the interest rate, adding to signs the easing cycle is over.
© Dukascopy Bank SA