Disclosure Statement: Durand Financial Services Pty Ltd and its advisers are authorised representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306. General Advice Warning: The information contained within this website does not consider your personal circumstances and is of a general nature only. You should not act on it without first obtaining professional financial advice specific to your circumstances.
The Australian economy is heading back to its long-term trend after being hit by the COVID-19 Omicron variant in the early stages on 2022.
The Westpac-Melbourne Institute leading index, which indicates the likely pace of economic activity three to nine months into the future, rose from minus 0.5 per cent in January to minus 0.25 per cent in February.
“While the growth rate lifted in February, the latest read remains in negative territory but only slightly below trend,” Westpac chief economist Bill Evans said.
The long term annual growth rate is considered to be around 2.8 per cent.
But Mr Evans says in contrast to this cautious signal from the leading index Westpac is expecting strong above trend growth in 2022, largely due to the aftermath of extraordinary emergency policy measures taken during the pandemic.
Australian households have accumulated around $250 billion in excess savings, providing considerable spending power.
“Not surprisingly, the leading index is likely to be understating the delayed impacts of these extraordinary emergency policies,” Mr Evans said.
The Reserve Bank of Australia also believes the economy remained resilient in the face of the Omicron variant and activity is expected to pick up.
But the war in Ukraine has cast a cloud over the inflation outlook.
In the minutes of its March 1 board meeting released on Tuesday, the RBA noted that while inflation was still lower than in many other countries, underlying inflation in Australia was expected to increase further over coming quarters.
However, it said there were uncertainties about how persistent the pick-up in inflation would be given the war in Ukraine and recent developments in global energy markets.
In the meantime, the board stuck to the script of being patient before lifting the cash rate as it monitors how the various factors affecting inflation in Australia evolve.
For Australia, where petrol prices continue to set new records, inflation expectations hit their highest level in nearly a decade at 5.6 per cent.
Inflation expectations can in themselves create price pressures as workers chase higher wages as compensation.
The Australian Institute of Petroleum said in its weekly report released on Tuesday that the national average petrol price soared 13.7 cents to a record 197.6 cents a litre.
Prices ranged from 184.9 cents to 211.1 cents during the course of the week ending March 13.
The Australian Bureau of Statistics will issue its household impacts of COVID-19 survey for February on Wednesday, which will show the affects of the Omicron outbreak on Australians.
Colin Brinsden, AAP Economics and Business Correspondent
(Australian Associated Press)