By Christian Edwards
SYDNEY, Jan 30. (Xinhua) -- The year 2013 has already seen Australia successfully stave of a ripening in inflationary data, unlocking Prime Minister Julia Gillard's government and its two- speed economy from a forced cut in the cash rate.
The latest data from the Australian Bureau of Statistics (ABS) has given Gillard's Treasurer Wayne Swan some much needed wriggle room, placing the annual rate of headline inflation from the December quarter unexpectedly up to 2.2 percent from 2 percent with Australia's core inflation remaining at 2.3 percent.
Paul Bloxham, HSBC's chief economist in Australia and New Zealand, told Xinhua that inflation continued to be modest throughout the fourth quarter, and that HSBC expects the Reserve Bank (RBA) to remain on hold, following a stern recovery in Chinese growth.
"Economic conditions have improved since the last RBA meeting. China's economy has continued to recover and commodity prices have risen solidly, which should support a rise in Australian income growth," He said.
According to the ABS, Australia witnessed unexpected boosts as the prices of some household goods softened in the fourth quarter with consumables such as food, pharmaceuticals and technology goods offsetting a strong dollar and petrol prices.Positive house price data and consumer sentiment indicators have produced positive indications from early January and Australia's equity market has risen strongly.
HSBC is now of the view that the Australian economy is currently at a turning point and that growth will pick up in the first quarter this year.
Bloxham said, "Given our outlook for a further pick up in Chinese growth and the already low RBA cash rate setting, we remain of the view that the easing phase of the RBA's cycle is done and that the next move is more likely to be up, later this year."
However Coalition Opposition deputy leader and shadow treasurer, Joe Hockey, does not share the optimism of local economists highlighting price movements indicative of the two-speed economy.
"Domestic cost pressures remain of concern, with non-tradeables (essentially domestically produced goods and services such as domestically sourced meat, pets, newspapers, takeaway food and new dwelling purchases) rising by 0.7 percent in the quarter and 3.9 percent over the year.
Hockey said that in 2012 the cost of electricity rose 17.7 percent, and the cost of gas and other household fuels rose 17.3 percent.
Hockey has been among the fiercest critics of Prime Minister Julia Gillard's introduction of a controversial carbon tax, which may have boosted average prices in the third quarter and impacted inflationary data.
"These have been directly impacted by the carbon tax and the government could relieve cost pressures in this area by abolishing the carbon tax," Hockey said.
Certainly domestic confidence is enjoying an extended Australian run, despite a cruel summer of natural disasters that are certain to impact long-term inflationary data.
Released this week, Australia's Morgan Consumer Confidence Rating shows Consumer Confidence rising to 121.7 points (up 1.8 points since Jan. 19/20, 2013). Consumer Confidence is now 4.7 points higher than at the same time a year ago.
Executive Chairman Gary Morgan noted an increase in confidence in personal finances over the next year and economic conditions for Australia in both the short and longer term.
Morgan said, "The rise in Consumer Confidence comes after a low level of CPI was released last week by the ABS showing inflation at only 0.2 percent for the December quarter -- an annual rate of under 1 percent."
According to the RBA's mandate, inflation in Australia should average between 2-3 percent over the course of the business cycle.
Morgan believes the low level of CPI indicates the weakness in the Australian economy.
"(The CPI) shows that the RBA must cut Australian interest rates at its first meeting for the year next Tuesday," Morgan said.
Australia's much touted resources boom has been at the heart of the country's consistent growth, thanks to the driving forces that led China's double-digit economy over the past dozens of years.
The problem for Australia is that with a record-breaking local currency suffocating manufacturing and services, the mining sector that provides Australia's economic oxygen has been locked into the fortunes of global commodity prices.
If China's economy sneezes, Australia catches a cold.
When Chinese growth slowed in 2012, domestic unemployment rose to 5.4 percent (notably still the envy of European and North American economies). And as commodity prices returned in the final quarter, Australia's mining sector has ramped up production and confidence returned.
With a federal election looming, the Australian Labor government's ability to stimulate the subdued manufacturing, housing construction and retail sectors relies on the RBA's ability to continue leveraging the cash rate.
Australia's benchmark cash rate has been incrementally lowered for 18 months and now stands at 3 percent.
If inflation remains under control and Treasurer Wayne Swan is able to take the pressure off mortgage holders with further rate cuts, voters may forgive him for breaking his promise to return a surplus and his prime minister for implementing radical carbon and mining taxes.
One man who is certain to remind Australians throughout this election year is Joe Hockey.
"Given Wayne Swan told us on Budget night in 2011 that ' meandering back to surplus...would compound the pressures in our economy and push up the cost of living for pensioners and working people', the treasurer must come clean on how his broken promise to return the budget to surplus will impact on the cost of living of Australian households," he said.