Property Research

The annual rate of inflation for Melbourne increased from 2.1 per cent in December quarter 2012 to 2.5 per cent in March quarter 2013. This was in line with the national level of inflation. The increase this quarter was mainly driven by increases in Education (+5.3 per cent), Health (+3 per cent), and Housing (+2.7 per cent). It should be noted, however, that the large increase in education this quarter is related to the fee structure of schools in which prices mainly increase in March quarters and remain relatively stable throughout the year. The increase in Housing costs is in line with the increase in the March quarter median price. The largest decreases this quarter were from Household Contents and Insurance (-3 per cent) and Clothing and Footwear (-1.9 per cent).

The Reserve Bank of Australia decided to lower the cash rate for the first time this year to a record low of 2.75 per cent. This brings the total reduction to two per cent since the easing cycle began in November 2011. The Board noted that global growth is likely to be below trend before picking up in the following year. While Australia’s economic growth has been close to trend and there has been a “strengthening in consumption and a modest firming in dwelling investment”, the Board also noted that employment has grown “more slowly than the labour force, so that the rate of unemployment has increased a little.” This latest move is consistent with the Board’s previous statements that there was scope to lower rates for “other areas of demand to grow more strongly” given the peak in resources investment.

Victoria’s unemployment rate increased slightly to 5.8 per cent in April 2013 in trend terms and remains higher than the national 5.5 per cent. Although Victoria added nearly 17,000 jobs over the past year, the unemployment rate remains higher than a year ago (5.5 per cent). In seasonally adjusted terms, Victoria’s unemployment rate also increased by 0.1 points to 5.8 per cent in April 2013. The recent RBA interest rate announcement cited rising unemployment as a key factor in the decision to lower the cash rate.

December quarter 2012 GDP figures showed that the Australian economy grew by 0.6 per cent in for the quarter in trend terms. This is slightly slower than the previous quarter’s growth of 0.7 per cent. This results in real growth for the year slowing further to 2.9 per cent.

At the state level, Victoria’s December quarter State Final Demand (SFD) figures showed that the economy contracted further by 0.7 per cent for the quarter in trend terms. This placed annual growth from positive to negative with the latest contraction resulting in annual growth of -0.3 per cent, the first negative annual growth figure since June 2009 in the midst of the Global Financial Crisis. This quarter’s contraction is mainly due to a large reduction in private fixed capital formation, particularly in non-dwelling construction, which is due to a sale transfer between the private to public sector. Despite this reduction, it should be noted that private dwelling investment increased this quarter.

After rising by 9.9 per cent over the past two months, the Westpac-Melbourne Institute’s Consumer Sentiment Index surprisingly fell by 5.1 per cent in April 2013. While the Index remains 11 per cent higher than a year ago, the latest reduction places it at the same level as in November 2012. This reflects the fragility of consumer confidence as consumers reacted to renewed global financial concerns (particularly in Cyprus); the prospect of the Reserve Bank increasing interest rates by the end of the year; and falls in the Australian Stock Exchange over the past month. Consumers in Victoria were more reactive with the Consumer Sentiment Index decreasing by 8.1 per cent from the previous month, the largest reduction of all the states. All of the five component indices in Victoria decreased with the largest reduction in being for economic conditions in the next five years (-14.5 per cent). Victoria’s time to buy a dwelling index decreased by 15.8 per cent from the previous month which was also the largest reduction of all the states. Despite this months’ decrease, the dwelling index remains 22.5 per cent above a year ago reflecting the largest improvement of all the states.