​​​
  1. Australia retailers battle deflation, RBA in reserve

Australia retailers battle deflation, RBA in reserve

Australia's retailers suffered another month of miserly growth in May as falling prices across a range of goods hurt revenues, a reminder of the disinflationary pressures arguing for a further cut in interest rates.

By: | Sydne | Published: July 5, 2016 12:48 PM
australia The Reserve Bank of Australia (RBA) holds its July policy meeting on Tuesday and is widely expected to hold rates at all-time lows of 1.75 percent following an easing in May. (Reuters)

Australia’s retailers suffered another month of miserly growth in May as falling prices across a range of goods hurt revenues, a reminder of the disinflationary pressures arguing for a further cut in interest rates.

The Reserve Bank of Australia (RBA) holds its July policy meeting on Tuesday and is widely expected to hold rates at all-time lows of 1.75 percent following an easing in May.

Political uncertainty at home and abroad would seem to argue for keeping its powder dry. Vote counting continues following weekend elections, leaving Australia without a government, while scars from Britain’s decision to leave the European Union are still fresh.

Yet a Reuters poll of 37 economists found the majority looked for the central bank to cut in August, in large part because inflation remains uncomfortably low.

The impact of poor pricing power was clear in the retail sector as data from the Australian Bureau of Statistics showed sales up a slim 0.2 percent in May, not much better than April.

That was disappointing given the retail industry has sales of A$290 billion a year and is the second biggest employer with 1.25 million workers.

Fierce competition from new entrants from offshore has depressed prices for everything from food to clothes. That eats into dollar revenues even as more goods are sold.

“I anticipate we’ll be dropping prices over the course of the next 5 years,” John Durkan, managing director of the giant Coles supermarket chain said recently. “I don’t see prices increasing during that period.”

It is this disinflationary sea change that led the RBA to cut rates in May, and argues for more easing ahead.

Weak prices have also been a feature of Australia commodity exports in the last couple of years, with ample supplies hurting iron ore and coal in particular.

Yet the hundreds of billions of dollars spent on expanding mines means the country is shipping more of the stuff than ever, providing a crucial boost to real economic growth. Exports alone accounted for almost half the 3.1 percent growth enjoyed in the year to March.

Trade data for May out on Tuesday showed exports rose 1 percent in May with shipments of iron ore and coking coal both stronger in the month. Exports to China were up almost 10 percent on May last year despite worries about sluggish growth.

However, imports rose even more in May, mainly due to higher oil costs, which widened Australia’s monthly trade deficit to A$2.2 billion.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Go to Top