Lower prices spell good news for economy

2 Nov 2012, 4:07 pm   -   Source: AAP

Official figures show Australian companies are grappling with higher costs but weaker prices, economists say.

The strong Australian dollar has pushed down prices for imported goods paid for at the farm or factory gate, spelling good news for consumers seeking a bargain.

The producer price index (PPI) at the final stage of production rose 0.6 per cent in the September quarter, lower than economists' projections of a 1.0 per cent rise.

The price of domestically produced goods rose by 0.9 per cent in the quarter and imported good prices fell by 2.3 per cent, according to the Australian Bureau of Statistics (ABS).

CommSec economist Savanth Sebastian said the PPI tended to be influenced by volatile factors such as currency movements and global oil prices.

He said the producer price data highlighted the tougher trading conditions for businesses but that profit margins were being squeezed at a slower pace.

"Given the sluggish domestic environment, the decrease in the prices for imported goods is likely to translate to lower prices for consumers," Mr Sebastian said.

"In the current environment, with consumers closely watching their pennies, it's more likely that businesses would seek to absorb higher costs and pass on any additional saving through to final buyers.

"In fact, over the past year, prices of consumers goods rose by just 0.8 per cent, marking the smallest annual increase in over three years."

The PPI was released on a Friday for first time before the publication of the quarterly Consumer Price Index data, scheduled for Wednesday.

The ABS previously issued the PPI on the Monday before the Wednesday CPI publication.

JP Morgan economist Ben Jarman said this change increased the importance of the producer price data.

"It really just consolidates the message we got from the consumer price data last week that there was an unwind in the previous spike in oil prices, so they've come down," he said.

"At the same time, we know from the CPI last week, electricity prices had a fair bump because of the carbon tax and that was in this report, too."

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