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Commodity prices signal improved economy

Commodity prices signal improved economy

Killian Plastow
— 1 minute read

Australia’s national income measures could be set to improve following a pick-up in commodity prices, says Fiducian Investment Management Services.

The financial services firm pointed to recent readings from the Reserve Bank of Australia’s (RBA) commodity price index, with Fiducian investment manager Conrad Burge saying this could cause a turnaround in the country’s terms of trade.

“The RBA index of commodity prices actually picked up somewhat in July and as a result, national income measures, which reflect ‘the real purchasing power of income generated by domestic production’ could also now be moving up once again after a long period of weakness,” he said.

In order to remain competitive however, Mr Burge said the RBA may need to cut the cash rate again to lift inflation, which was up only 0.4 per cent for the June quarter.

Global growth experienced a slowdown in recent months, with US growth easing to an annualised 1.1 per cent in the previous quarter, and 0.3 per cent and 0 per cent quarter-on-quarter for the eurozone and Japan respectively.

“In its most recent report, the International Monetary Fund reduced its world growth forecasts for 2016 to 3.1 per cent, the same as for 2015, and to 3.4 per cent for 2017, but these could be revised down even further if evidence of a pick-up does not soon emerge,” Mr Burge said.

Mr Burge said the comments from the International Monetary Fund implied a need for continuation of low interest rates and supportive measures from central banks.

Despite this, he said the US Federal Reserve chair Janet Yellen’s recent comments – “The case for an increase in the federal funds rate has strengthened in recent months” – were indicative of a possible short-term rate rise in the US.

“The US central bank appears likely soon to raise official short-term rates above the current historically low 0.25 per cent,” Mr Burge said.

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