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Australia's producer prices rebounded in the third quarter after two successive quarters of decline, a report released by the Australian Bureau of Statistics showed on Monday.
The producer price index rose 0.1% sequentially in the third quarter, in contrast to the record 0.8% fall in the previous quarter. Economists had expected 0.3% growth in prices.
The official report showed that domestic producer prices climbed 1% in the third quarter. In terms of components, the price of electricity, gas & water supply increased 12.1%, followed by prices in bakery product manufacturing and petroleum refining prices, up 10.4% and 6.3%, respectively. This was partly offset by decreases in computer services prices, which fell 7.1%, and prices in other agriculture, down 5.6%.
At the same time, import prices fell 5.1% in the third quarter. This was mainly due to price falls in industrial machinery & equipment manufacturing and electronic equipment manufacturing, down 7.9% and 11%, respectively, while on the other hand, beverage & malt manufacturing prices grew 5.8% and petroleum refining prices were up 3.9%.
Annually, producer prices increased 0.2% in the third quarter compared to the 2.1% increase in the second quarter. This marks the slowest pace of growth in prices recorded since the series first began in the fourth quarter of 1998.
In terms of the stage of production, producer prices at the secondary stage of production fell 0.6% sequentially in the third quarter, with domestic prices falling 0.6% and import prices down 1%. In the year to the September quarter, prices were down 4.9%.
In the first stage of production, producer prices slipped 0.5% on a quarterly basis, reflecting a 0.9% fall in domestic prices, while import prices were up 2.2%. Annually, producer prices in the first stage of production were down 7.5%.
The slowest gain in annual producer prices recorded in the ten year history of the index could put a dampener on the central bank's hopes for rapid rate hikes. Governor Glenn Stevens became the first G-20 central bank chief to raise the benchmark interest rate since the onset of the global crisis, with a 25 basis points hike to 3.25% from a 49-year low of 3.00%, saying that a "very expansionary setting of policy was no longer necessary, and possibly imprudent", paving the way for two more rate hikes by the end of the year.
Last week, an official report showed that the Westpac-Melbourne Institute Leading Index rose 1.7% on an annualized basis in August, marking the first time since September 2008 that the annualized leading index has recorded positive growth. However, the annualized growth remained below its long term trend of 2.8%.
The leading index gives an indication of how the economy will perform in the next three to nine months. The index had reached its low point with a 6.9% annualized decline in May.
"The current sharp improvement in the growth rate of the Leading Index strongly supports the view that the Australian economy is moving onto a much stronger growth trajectory in 2010," Westpac Chief Economist Bill Evans said. "A decision to raise rates by 50 basis points in November would not surprise."
The Reserve Bank of Australia holds its next Monetary Policy Committee meeting on November 3 and is likely to keep a close eye on September quarter's consumer price inflation data, scheduled for release later this week from the statistical bureau.
The Australian dollar that declined against its major counterparts on early Monday, reversed direction following the release of third quarter's producer price data.
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