As the numbers roll in, Australia’s economic forecast grows increasingly worrisome. Recent data suggest that Australia might just be on its way to a recession.
First off, the Melbourne Institute’s inflation gauge rose by 0.2% in August and now stands 6.1% higher than the same period last year. The trimmed mean measure increased a mere 0.1% in August, but its annual growth rate escalated from 5.1% in July to 5.7% in August. Analyst Tarric Brooker, also known as Avid Commentator, noted this as a “major resurgence in Aussie inflation.” He pointed out that the trimmed mean metric reached a record high for the current cycle and echoed the price pressures present in the AiG PMIs and the NAB business survey.
However, Stephen Koukoulas, an adviser to the Prime Minister, expressed caution. He mentioned the “petrol effect in August” and noted the MI InflationGauge Gauge’s diminishing reliability. According to him, the gauge has undershot inflation rates by 2 to 3 percentage points, calling this “a big miss.” Koukoulas speculated on whether the gauge would redeem its performance in the upcoming months.
AMP’s Shane Oliver concurred with Koukoulas, stating that the Melbourne Institute’s gauge “undershot the ABS’s quarterly and monthly CPI inflation rates on the way up, so it may be doing the same on the way down.” Oliver’s remarks add another layer of complexity to the inflation narrative, as discrepancies between various measures make it challenging to get a clear read on the economic landscape.
Chief Economist at IFM Investors, Alex Joiner, highlighted the sharp fall in inventories, which are expected to subtract around one percentage point off quarterly real GDP. This is significant, especially considering the market was anticipating a small increase. Joiner indicated that these developments should lead to “expectations being revised materially lower.”
Stephen Koukoulas further added to the bleak outlook with some unsettling data. Company profits plummeted by 13.1% in the June quarter. Although wages and salaries rose by 1.8%, inventories took a 1.9% hit. Manufacturing sales are down 2.0%, and wholesale trade sales have decreased by 3.4%. This collection of indicators paints a rather ugly economic picture.
The signs are all there: rising inflation, unreliable gauges, shrinking inventories, and plummeting company profits. As if navigating through a channel of economic uncertainties, Australia must now consider the very real possibility of entering a recession. While analysts, economists, and policymakers may differ on the nuances, the data seems to sing in unfortunate harmony: tough times are ahead for Australia.
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