Rate rise fears ease

A rash of economic statistics out in the last two days – just in time for next week’s Reserve Bank (RBA) board meeting – on balance suggest there will most likely be no interest rate rise in September.

Retail sales fell sharply in July, down a seasonally-adjusted 8.7 per cent, while building approvals dropped 14 per cent in the same month. While falls were fully expected after the introduction from the GST that month, both were greater than expected. These results come on the back of yesterday’s figures showing a less-than-expected 0.6 per cent growth in hourly wage costs in the three months to June.

Retail spending is the big engine in the economy, while the housing market is an important forward indicator of economic activity. With both these heading down, even allowing for the GST effect, signs of a slowing economy later this year and into next are growing. Meanwhile, wage growth is a key indicator for the RBA in its estimation of the inflation threat and the moderate third-quarter growth will be welcomed.

BankChoice believes the RBA were more likely to hold fire this month anyway after the August quarter point rise to 6.25 per cent. While it is clear the economy remains buoyant and we probably haven’t seen the peak yet, the RBA has acknowledged that the full effects of the four rate rises this year are yet to be felt. It may well want to wait for more signs of this impact before jumping to raise rates again, although the difficulty of determing the underlying trend at the moment amid a raft of GST-distorted figures clouds the forecasters’ tea leaves.