"Such a shift implies, by definition, that a formal ratings downgrade over the subsequent two-year period is a one-in-three chance"
- Goldman Sachs
Australia's factory gate inflation rose at a faster pace than expected in the beginning of the year. Australian producers fetched higher prices for final goods in the first quarter than in the October-December period of 2014, suggesting that the flow-through of the weaker exchange rate on import prices was strong during the reported period. Australia's Producer Price Index for final demand excluding exports increased 0.5% on a quarterly basis in the three months through March, according to the Australian Bureau of Statistics, coming in better than the expected rise of 0.2% and compared with the previous pace of 0.1%. Prices of imported goods advanced 2.8% in the first quarter, while prices fetched for domestic goods rose modestly by 0.2%, suggesting the weakening of the Australian Dollar in recent months has begun to have an upward effect on prices.
Meanwhile, Australia, one of only 12 countries with a top-notch AAA credit rating, risks a ratings downgrade for the first time since 1989, Goldman Sachs warned, saying the country could be hit with a "negative outlook" within months due to Australia's "poor fiscal performance". Falling commodity prices, declining terms of trade, weak economic growth and political impasse stripped $283 billion out of the budget over forward estimates in the past 30 months, with a further $55 billion deterioration possible in the May budget.
© Dukascopy Bank SA