Mixed economic data to keep RBA on alert

The Reserve Bank Board certainly has a job on its hands to sift through the slew of economic data, surveys and reports currently flooding the market on the state of the economy’s health. RBA Governor Glenn Stevens and his team are likely to keep pouring over the information that’s emerging about economic indicators such as business confidence and jobs growth. Some of the data shows a mixed picture but many economists believe that the RBA will look through the numbers and stick to its current monetary policy stance.

A monthly measure of Australian business confidence released this week by one of the major banks showed that the tighter credit conditions were really starting to take their toll on business. The survey showed a seven percentage point drop in the business conditions index during June. It suggested that the economy is radically losing speed due to high interest rates, record fuel prices and a shortage of available credit. Business conditions were noticeably weaker in durable goods retailing, which includes consumer items like household appliances and cars.

To confuse matters, financial markets were caught off guard this week when the Australian labour market showed surprising strength during June. The unemployment rate fell 4.2 per cent, after 29,000 jobs were created during the month. The market expected only 10,000 jobs to be created. Many economists believe that the RBA won’t take too much notice of the job figures saying they only reflect the month-to-month volatility in the labour force survey.

The key factors that will force the RBA to take a more severe tightening bias continue to be the potential inflationary side effects from robust terms of trade, wages pressures and $7 billion in budget tax cuts. Plus, persistent price pressures for fuel, rent and food will be significant in influencing inflationary expectations over the remainder of the year.

Infochoice.com.au