Implications for interest rates and investors

Lending slumps; Petrol slides and further falls likely
Weekly Petrol Prices; Lending Finance; Credit & debit card statistics

  • Petrol prices fall. According to the Australian Institute of Petroleum, the national average Australian price of unleaded petrol fell by 2.5 cents per litre to 141.6 cents a litre in the week to November 13 – a ten week low.
  • Today the wholesale (terminal gate) price stands at 131.3 cents a litre, up 0.6 cents a litre compared with last week. Over the past 22 days, the wholesale price has fallen by 8.2 cents a litre. So far the pump price has fallen by only 4.7 cents a litre.
  • Lending slump. Total lending finance fell by 6.2 per cent in September after rising by 5.1 per cent in August. Most components recorded weaker readings and total lending commitments were holding at 3-month lows.
  • Consumers say no to debt. The average credit card limit grew by just 1.5 per cent over the past year – the slowest growth on record (17 years).
  • The average credit card balance fell by $10.30 to $3,292.60 in September. In smoothed terms the average credit card balance was up just 2.2 per cent on a year ago – the slowest pace in 17 months.
What does it all mean?

  • The national average petrol price has slumped by just shy of five cents a litre in the space of a fortnight and is now holding at a 10-week low. It’s certainly been great news for motorists, and over the next week there should be even better pump prices on offer. In fact the wholesale price of fuel has fallen by over 8 cents a litre in the past three weeks and the retail price has only fallen by just less than 5 cents a litre. In other words petrol retailers are still playing catch up and it should ensure that pump prices fall by around another 2-3 cents a litre over the next week.
  • Looking out to late in the month t is likely that this will be as good as it gets, and motorists should take advantage of the cheaper fuel prices while they lasts. Hope of a resolution to the European debt crisis has supported investor risk appetite. And as such there are signs that the Singapore unleaded price is reversing tack and is now rising which will feed through to domestic pump prices over the next month.
  • The earlier encouraging signs on the lending front have come to an abrupt halt. After two healthy months of growth, lending has slumped in September, effectively giving back the recent gains. The result is even more disappointing given that lending was climbing off a low base and a healthy turnaround is needed to support economic activity.
  • Across the sectors, commercial and personal lending went backwards in September, while the housing sector showed signs of life. Unfortunately any improvement in lending seems to be as a result of refinancing and debt consolidation. In other words a cannibalisation of the existing loans has been the main driver rather than a pickup in new borrowing activity.
  • Importantly the lending data pre-dates the recent rate cut by the Reserve Bank. And given the sharp rise in consumer sentiment over the past week it is likely to boost activity in coming months. In addition the perception that interest rates are likely to fall further will help to support activity.
  • If there was any doubt about the conservatism of Aussie consumers it was laid to rest with the latest data on credit and debit card lending. The average credit card limit rose by just 1.5 per cent in the year to September – well below the rate of inflation and the slowest growth pace on record. It is clear that Australia’s economic momentum will be closely tied to the activity levels generated by consumers and businesses. And a healthy sustained improvement in borrowings will be required to support activity in coming months.
  • It’s not just that consumers are saying no to more debt, they are actually trimming current liabilities. The number of credit cards accounts fell in a September month for the first time in records going back 17 years. In addition the average credit card balance has fallen for the third straight month.
  • Aussie consumers may be shunning credit cards, but they are certainly using their debit cards (or their own money) more often to make purchases. The number of debit card transactions to purchase goods was up over 15 per cent in September on a year earlier.
What do the figures show?
Weekly petrol prices:
  • According to the Australian Institute of Petroleum, the national average Australian price of unleaded petrol fell by 2.5 cents a litre to 141.6 cents a litre in the week to November 13. The metropolitan price fell by 3.2 c/l to 139.7 c/l, while the regional average price fell 0.9 c/l to 145.6 c/l.
  • The national average diesel price rose by 0.1 c/l to 148.1 cents a litre.
  • Average petrol prices across states over the past week were: Sydney (down 3.5 cents to 139.3 c/l), Melbourne (down 4.9 cents to 136.1 c/l), Brisbane (down 4.2 cents to 142.5 c/l), Adelaide (up 2.8 cents to 141.1 c/l), Perth (down 2.6 cents to 140.7 c/l), Darwin (down 0.9 cents to 152.0 c/l), Canberra (down 1.7 cents to 150.4 c/l) and Hobart (down 0.3 cents to 150.2 c/l).
  • Today, the national average wholesale (terminal gate) stood at 131.3 cents a litre, up 0.6 cents compared with a week ago. Over the week the wholesale price averaged 130.5 cents a litre, down 2.1 cents a litre on the average price for the previous week.
  • The key Singapore unleaded petrol price rose modestly last week by US7c (0.1 per cent) to US$115.45 a barrel. In Australian dollar terms the Singapore gasoline price rose over the week by $2.51 (2.3 per cent) to a $113.63 a barrel.
Lending Finance:
  • Total new lending commitments (housing, personal, commercial and lease finance) fell 6.2 per cent in September after rising by 5.1 per cent in August. Lending totalled $53.3 billion in September – a 3-month low.
  • All housing finance (owner occupier & commercial) rose by 0.6 cent in September – the sixth consecutive rise – after rising by 0.8 per cent in August.
  • Commercial finance fell by 10 per cent in September after rising by 7.7 per cent in August. Within commercial commitments, fixed lending fell by 7.3 per cent while revolving credit fell by 15.3 per cent. Commercial loans are up 6.7 per cent on a year ago.
  • Personal finance fell by 2.5 per cent in September after rising by 2.1 per cent in August. Fixed lending commitments rose 1.7 per cent, while revolving credit commitments fell by 7.3 per cent. Personal loans are down 8.4 per cent on a year ago.
  • Lease finance rose by 1.3 per cent in September after rising by 6.8 per cent in August. Lease loans are up 5.4 per cent over the year.
Credit & debit card activity:
  • Figures released from the Reserve Bank show that the average credit card balance fell by $10.30 to $3,292.60 in September. The average credit card balance is up 1.3 per cent on a year earlier. The number of credit card accounts fell by 15,000 to 14.94 million in September – marking the first ever contraction in a September month.
  • Of credit cards attracting interest charges, the average outstanding balance fell by $36.80 to $2,423.20. The average balance accruing interest is up 2.0 per cent on a year ago.
  • The average credit card limit rose by just 1.5 per cent in the year to September, the slowest growth on record (17 years).
  • The number of credit card cash advances fell by 5.7 per cent in September. Credit card advances are now down 6.2 per cent on a year ago and have consistently fallen in the past four years.
  • The number of purchases made on credit cards in September fell by 4.8 per cent, with the annual growth rate easing from 10.3 to 5.5 per cent. Total debit card transactions were up by 15.9 per cent on a year ago. EFTPOS only transactions were up 14.1 per cent on a year ago.
  • The number of cash out only transactions with debit cards was up 7.3 per cent on a year ago in September with the value of transactions up 10.7 per cent. In contrast the number of ATM cash withdrawals was up only 0.8 per cent on a year ago with the value of withdrawals up 0.7 per cent.
What is the importance of the economic data?
  • Weekly figures on petrol prices 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’s 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.
  • Lending Finance is released monthly by the Bureau of Statistics and contains figures on new housing, personal, commercial and lease finance commitments. The importance of the data lies in what it reveals about the appropriateness of interest rate settings, confidence and spending levels in the economy.
  • The Reserve Bank releases data on credit and debit card transactions each month. The credit card figures are useful in highlighting consumer borrowing and spending trends.
What are the implications for interest rates and investors?
  • Petrol is the single biggest purchase that most families make each week. So the fact that petrol prices have been falling substantially over the past couple of weeks and households also received a reprieve on interest rates should support the household budget and boost confidence further.
  • Australia’s economic momentum will continue to be determined by the pace of lending and credit use. A further sustained pickup in lending will be required to ensure that activity levels gather pace. The recent slide in fixed term interest rates will help to shore up confidence and support sentiment in coming months.

 

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This entry was posted in Australia, Banks, Housing Affordability, Housing Data, Interest Rates Australia, Investors, Mortgages, Port Douglas, Property Investor, Property Values, Propety Prices, Real Estate. Bookmark the permalink.

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