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Stronger commodity prices ease need for rate cut

Stronger commodity prices ease need for rate cut

by Simon Parker 0 comments

Staff Reporter

Australia’s industrial commodity prices are on the rise, giving the Reserve Bank less reason to cut the official cash rate when the board meets next month.

According to HSBC chief economist Paul Bloxham, prices of Australia’s two key commodity exports have risen strongly in the past two months, after having fallen sharply in the third and fourth quarters of last year.

“Iron ore prices are up around US$145 per tonne, from their low point of just under US$90 per tonne in early September,” Mr Bloxham said.

“Steel-making coal prices have risen by around 20 per cent from their Q3 level. Base metal prices have also risen in recent weeks. The fall in commodity prices last year weakened Australian income growth significantly, with nominal economic growth slowing to 2.2 per cent, from 5.5 per cent in 2011. The recent bounce in commodity prices should support a pick-up in income growth this year and may obviate the need for further rate cuts.”

Yet only yesterday, the Real Estate Institute of Australia (REIA) said recent inflation numbers gave the Reserve Bank room to cut rates on February 6.

According to HSBC, China is the largest single consumer of a large range of commodities and is thus the key driver of marginal demand and prices for many commodities, particularly industrial commodities.

China consumes over half of globally produced iron ore, just under half of the world’s coal and 30 to 40 per cent of the world’s production of base metals.

As a result, China consumes the bulk of the commodities that Australia exports.

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Stronger commodity prices ease need for rate cut
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