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Economics | March 15, 2021

East Coast petrol prices ease; Used car prices lift Australia’s digital future; China’s ‘V’-shaped recovery RBA Governor speech; Petrol Prices; Used vehicle market; China economic data Speech by Reserve Bank Governor: Governor Philip Lowe provided opening remarks to the Melbourne

Business Analytics Conference. Dr. Lowe said, “In many ways data is the new oil of the 21st century. Investing in data and our digital capability are critical to our future prosperity.”

Fuel prices: Last week the national average price of unleaded petrol fell by 1.1 cents a litre to 140.2 cents per litre (c/l) according to the Australian Institute of Petroleum. Retail unleaded pump prices are easing on Australia’s East Coast due to discounting cycles, but prices could be hiked in Brisbane later this week.

Used car prices: Used vehicle prices rose 0.9 per cent last week with supply up 15.8 per cent.

China monthly activity data: Retail sales expanded at a 33.8 per cent annual rate in January-February (consensus: +32.0 per cent). Industrial production rose at a 35.1 per cent annual rate (consensus: +32.2 per cent). Fixed-asset investment expanded by 35.0 per cent in the first two months of 2021 from the same period a year earlier (consensus: +40.9 per cent).

Movements in the petrol price can affect consumer spending, and in turn, prospects for retailers. Used car price data is useful in gauging activity levels in the motor vehicle market. The Chinese data is important for exporters, especially rural producers, consumer goods, mining and energy companies.

What does it all mean? Reserve Bank Governor Philip Lowe delivered a speech today encouraging investment in information technology

and data, supporting Australia’s productive capacity and future economic prosperity. Dr. Lowe said, “In many ways data is the new oil of the 21st century,” underscoring his view that digital innovation across all sectors of the economy is crucial to Australia’s post-pandemic economic recovery.

The Governor again pushed-back on market expectations for a tightening of monetary policy, noting that, “The unemployment rate of 6.4 per cent is too high and the economy is operating well short of its capacity. Inflation and wages growth are also both lower than we would like.” He also added, “One piece of the recovery that is yet to click into gear is business investment.”

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Economic Insights. East Coast petrol prices ease

Petrol prices are easing on Australia’s East Coast with the discounting cycle underway. Today, retail unleaded pump prices are averaging between $1.29 and $1.46 a litre in Brisbane, Sydney and Melbourne after hitting recent cycle of highs of almost $1.60, according to real-time fuel app Motormouth. But motorists in South-East Queensland beware. Fuel prices are approaching the bottom of the ‘cheap phase’ of the price cycle near $1.30 a litre and will likely be hiked in the coming days. So drivers should fill up as soon as possible.

With Sydney and Melbourne only a week or so into their discounting cycles, unleaded petrol prices will continue to decline over the next fortnight, so motorists should top up rather than fill up their tanks. Already pump prices are below a $1.30 a litre in pockets of South-Western Sydney and Melbourne, so motorists should continue to shop around for the best deal at servos.

Used car prices have risen for successive weeks with stock remaining low. Ahead of the Easter school holidays, Aussies continue to buy larger SUVs and recreational utes for road trips, pushing up vehicle prices. Last week, Toyota Kluger (up 4.2 per cent) and Holden Colorado (up 2.7 per cent) used car prices rose the most.

China’s economy has bounced-back after the Covid-19 lockdowns a year ago plunged the world’s second largest economy into the deepest downturn in decades. Reflecting a demand-supply imbalance, the recovery has been driven by China’s manufacturing, industrial and property construction industries. Retail spending has improved. But the outsized annual growth rates are largely distorted by the economic shutdown a year ago (base effects).

A closer inspection of both the purchasing managers’ surveys and activity data in January and February shows that the Chinese economy lost some momentum due to a resurgence in Covid-19 cases and the reimposition of government social distancing measures. In fact, retail spending fell 0.8 per cent over the first two months compared to December 2020. And the jobless rate rose from 5.2 per cent to 5.5 per cent. That said, fixed asset investment (+5.0 per cent) and industrial production (+1.4 per cent) supported growth in the Lunar New Year holiday period. Given base effects, China is set to easily surpass its GDP annual growth target of above 6 per cent in 2021, but fiscal and monetary policy support is likely to be eased back gradually.

What do you need to know? Speech by Reserve Bank Governor

Reserve Bank Governor Philip Lowe provided opening remarks to the Melbourne Business Analytics Conference. The theme of the conference was, “Driving Recovery and Growth through Data Analytics.” The speech can be found here: https://www.rba.gov.au/speeches/2021/sp-gov-2021-03-15.html?utm_source=twitter&utm_medium=social&utm_content=gov-speech&utm_campaign=regular

Key comments are as follows:

On Australia’s digital future: “In many ways data is the new oil of the 21st century. Investing in data and our digital capability are critical to our future prosperity.”

On the monetary policy outlook: “The RBA is doing what it can to support the recovery from the pandemic and will maintain that support until we have achieved our goals for full employment and inflation.”

On business investment: “One piece of the recovery that is yet to click into gear is business investment. Understandably, last year many firms deferred their investment plans and sought to reduce risk on their balance sheets. Late in the year there was a welcome pick-up in investment in machinery and equipment, but there is still a long way to go to get back to the level of investment before the pandemic, which itself was low by historical standards. If we are to have a strong and durable recovery, it is important that the recovery in business investment continues and broadens.”

On the economic recovery: “Looking across the range of indicators, Australia is doing much better than most other advanced economies. This, however, does not hide the fact that we still have a long way to go. The unemployment rate of 6.4 per cent is too high and the economy is operating well short of its capacity. Inflation and wages growth are also both lower than we would like. While we are expecting further progress to be made towards full employment and the inflation target, it is going

March 15, 2021 3

Economic Insights. East Coast petrol prices ease

to take some time before we reach our goals.”

Weekly petrol prices

Last week the national average price of unleaded petrol fell by 1.1 cents a litre to 140.2 cents per litre (c/l) according to the Australian Institute of Petroleum. Metropolitan prices fell by 2.1 cents to 142.7 c/l, but regional prices rose by 1.2 cents to 135.2 c/l.

Average unleaded petrol prices across states and territories over the past week were: Sydney (+3.7 cents to 149.2 c/l), Melbourne (-1.3 cents to 152.7 c/l), Brisbane (-8.1 cents to 132.6 c/l), Adelaide (-15.8 cents to 127.5 c/l), Perth (+1.1 cents to 136.1 c/l), Darwin (+1.1 cents to 132.0 c/l), Canberra (+3.1 cents to 137.0 c/l) and Hobart (+2.2 cents to 137.4 c/l).

The smoothed gross retail margin (2-month rolling average) for unleaded petrol rose from 16.09 cents per litre to 17.08 cents a litre (24-month average: 15.51 cents a litre).

The national average diesel petrol price rose by 1.1 cents to 132.8 cents a litre over the past week. The metropolitan price lifted 1.2 cents to 132.2 cents a litre and the regional price was up 1.1 cents to 133.3 cents a litre.

Last week, the national average unleaded Terminal Gate Price (TGP) was up 1.4 cents to 123.3 cents a litre. And the terminal gate diesel price rose by 0.7 cents to 121.3 cents a litre.

Today, the average unleaded TGP stands at 12-month high of 124.8 cents a litre, up by 2.3 cents over the week. The terminal gate diesel price reached a 12-month high at 122.3 cents a litre, up 1.7 cents a litre over the week.

MotorMouth records the following average retail prices for unleaded fuel in capital cities today: Sydney 144.5c/l; Melbourne 145.8c/l; Brisbane 129.2c/l; Adelaide 148.6c/l; Perth 125.3c/l; Hobart 138.3c/l; Darwin 132.2c/l; and Canberra 138.3c/l.

Last week the key Singapore gasoline price rose by US$2.61 or 3.5 per cent to a 14-month high of US$76.91 a barrel. And in Australian dollar terms, the Singapore gasoline price rose by $2.41 or 2.5 per cent to a 13-month high of $98.79 a barrel or 62.13 cents a litre.

Weekly used vehicle market

Datium Insights have reported the following results for the week to March 15:

“Prices were largely flat last week (+0.9 per cent) with SUV’s (+1.2 per cent) leading the increases.

Supply rebounded (+15.8 per cent) after a low last week, however stock continues to tighten in the market

Clearance rates were also flat (+0.3 per cent).

Prices for the top 15 traded vehicles were mixed with the Toyota Kluger (+4.2 per cent) leading increases and the Holden Commodore seeing the greatest decrease (-7.6 per cent).

Stock still remains considerably low.”

China economic data – January-February

Retail sales expanded at a 33.8 per cent annual rate in January-February (consensus: +32.0 per cent), up from 4.6 per cent growth in December. Over the year to January-February, spending rose the most on jewellery (up 98.7 per cent) and least on food (up 10.9 per cent).

Industrial production rose at a 35.1 per cent annual rate in January-February (consensus: +32.2 per cent), faster than the 7.3 per cent gain in December. Over the year to January-February, manufacturing output lifted by 39.5 per cent, electricity output rose by 19.8 per cent and mining production lifted 17.5 per cent. Production rose the most for auto manufacturing (up 70.9 per cent).

Fixed-asset investment expanded by 35.0 per cent in the first two months from the same period a year earlier (consensus: +40.9 per cent) after expanding at a 2.9 per cent rate in the 12 months to December from a year earlier. Over the year to January-February, investment by the private sector rose by 36.4 per cent and investment by state-owned enterprises increased by 32.9 per cent. By industry, investment in pharmaceuticals (up by 64.0 per cent) rose most, but investment in mining (up by 15.8 per cent) lagged.

Property investment expanded at a 38.3 per cent annual rate over the year to January-February

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Economic Insights. East Coast petrol prices ease

(consensus: +53.4 per cent).

The unemployment rate (nationwide survey-based jobless rate) rose from 5.2 per cent in December to 5.5 per cent in January-February (consensus: 5.2 per cent).

New home prices rose by 4.3 per cent in in the first two months of 2021 from the same period a year earlier after lifting by a 3.9 per cent annual rate in December.

What is the importance of the economic data? Speeches from the Reserve Bank Governor influence

financial markets and provides guidance on the economy for investors and businesses.

Weekly petrol prices data are compiled by ORIMA Research on behalf of the Australian Institute of Petroleum (AIP). National average retail prices are calculated as the weighted average of each State/Territory metropolitan and non-metropolitan retail petrol prices, with the weights based on the number of registered petrol vehicles in each of these regions. AIP data for retail petrol prices is based on available market data supplied by MotorMouth.

Data analytics firm, Datium Insights, provides a weekly report on the used vehicle market. Datium Insights and Moody’s Analytics also issue a monthly reading on used vehicle prices. The data assists in gauging the strength of a key component of consumer spending and provides insights on the Autos and components sector of the sharemarket.

China’s National Bureau of Statistics releases its monthly economic statistics around mid-month. Quarterly GDP data is released around the 19th of January, April, July and October. China’s Customs Office releases trade data, and the People’s Bank of China releases financial statistics, around the 10th of each month. China is Australia’s largest trading partner and changes in the Chinese economy have major implications for the Aussie economy.

What are the implications for investors? Aussie motorists remain captive to retail petrol price cycles. Servos argue that cycles are largely a function of

competitive fuel markets, meaning that prices can fluctuate by up to 40 cents a litre in a three-to-four week period. But fuel prices are also largely determined by the cost of imported refined petroleum product and government taxes. At the end of last week, the key Singapore gasoline price hit 14-month highs and today Aussie wholesale or terminal gate prices are at 12-month highs, so domestic pump prices are trending higher with supply restraint by global producers supporting global crude oil prices. Aussie unleaded petrol prices, therefore, are likely to peak at pre-pandemic levels of around $1.65 a litre in Brisbane when prices are hiked, possibly later this week.

Economists will focus on the commentary about recent bond market dysfunction and rising inflation expectations in minutes of the March 2 Reserve Bank Board meeting on Tuesday. Much attention will also be paid to which 3-year government bond lines – April or November 2024 – policymakers will purchase as part of its yield curve control strategy. Bottom line is that Reserve Bank is fixated on getting the jobless rate closer to 4 per cent and wages growth above 3 per cent. So in order to achieve its full employment and inflation goals - while eroding spare capacity - it will likely maintain its record low 0.1 per cent cash rate and $100 billion government bond buying program for an extended period. Governor Lowe also voiced concerns about weak business investment, while the expiry of the JobKeeper wage subsidy looms as an additional downside risk to the economic recovery.

Australia’s top trading partner, China, continues its sharp economic recovery, benefitting our bulk commodity exporters. And our agricultural farmers - confronted with Chinese tariffs and import duties - have found alternative markets. Analysts at Thomas Elder Markets have today reported that Saudi Arabia could be Australia’s biggest barley export market in 2021, providing the bulk of the Middle Eastern Kingdom’s recent 660,000 tonne barley orders at tenders.

Ryan Felsman, Senior Economist, CommSec Twitter: @CommSec