The Reserve Bank is widely expected to leave the cash rate unchanged when its board meets next week, but new figures may have raised a few eyebrows among its members.
The home building boom, which has become the lifeblood for the economy to fill the shoes of the once-rampant mining sector, produced some unsettling numbers at first glance on Thursday.
New building approvals dropped 8.2 per cent in June, led by a staggering 20.4 per cent slump in the volatile apartments approvals.
But approvals for houses actually rose 4.3 per cent in the month.
“While new home building has likely already peaked, we expect it will remain at a very high level in the 2015/16 financial year,” Housing Industry Association economist Diwa Hopkins said.
However, the end of the mining boom continues to hurt national income with the terms of trade tumbling nearly six per cent in the June quarter.
The terms of trade has now fallen some 30 per cent over the past three years.
JP Morgan chief economist Stephen Walters says while remaining well above historical averages, this correction probably has further to run.
“We expect further weakness in our key commodity prices as global supply ramps up, and import prices likely will rise,” he said, adding that this is partly due to the fall in the Australian dollar.
This will exacerbate the impact on an already sluggish economy, a key factor why the RBA cash rate sits at a record low of two per cent.
Commonwealth Securities economist Savanth Sebastian believes the central bank is “comfortably” on the sidelines and does not expect a move in rates for the rest of 2015.
“However, the risks certainly lie with another rate cut rather than a hike,” he said.
The trade price figures again highlighted the subdued nature of inflation.
This and record low wages growth is curbing enterprise bargaining deals in the private sector, but not apparently for public servants.
New Department of Employment data shows that the average annualised wage increase for agreements approved in the March quarter eased 0.3 percentage points to three per cent for private sector workers.
It rose to 3.7 per cent, from 3.5 per cent in the public sector.
However, both sets of workers were doing better under their agreements than the wage price index that was released in May – the RBA’s preferred measure of wage growth – which eased to a record low annual rate of 2.3 per cent in the March quarter.