Petrol Prices; Used car prices; New vehicle sales; Services; Inflation

Fuel prices: The national average price of unleaded petrol rose 1.3 cents to 116.5 cents a litre last week according to the Australian Institute of Petroleum.

Inflation: The Melbourne Institute inflation gauge rose by 0.1 per cent in September to an annual growth rate of 1.3 per cent. The trimmed mean measure rose 0.1 per cent to be up 0.1 per cent over the year.

Purchasing manager indexes (PMI): The IHS Markit services PMI rose from 49.0 in August to 50.8 in September. The composite PMI rose from 49.4 in August to 51.1 in September. A reading above 50 indicates an expansion in activity.

Used car prices: According to Datium Insights (and based on Pickles auction data), used car prices rose by 4.4 per cent last week.

New vehicle sales: New vehicle sales totalled 68,985 units in September, down 21.8 per cent on September 2019.

Movements in the petrol price can affect consumer spending, and in turn, prospects for retailers. Used car price data is useful in gauging activity levels in the motor vehicle market. The purchasing manager surveys provides insights into business activity.

What does it all mean?

• Since mid-June Australia’s national average petrol price has broadly held between 115-130 cents a litre, averaging 121 cents. Go back a year ago and petrol prices were more like 141 cents a litre. And in 2018 prices were even higher, just under 150 cents a litre. So you could hardly say that Australian motorists have done badly over the COVID-19 recession period.

• A fall of 20 cents a litre or $12.00 less to fill up a 60 litre tank of petrol, means extra spending power. That is good news for motorists and good news for retailers.

• Globally, the COVID-19 era has meant less demand for fuel. But in response, key OPEC producers have reduced crude oil output. So the Brent and Nymex crude oil benchmarks have held close to US$40 a barrel. That price level looks set to hold with second waves of the coronavirus leading to tighter restrictions on movement in a number of European countries.

• Global oil prices were lower on Friday. Brent crude fell by US$1.66 or 4.1 per cent to US$39.27 a barrel. The US Nymex lost US$1.67 or 4.3 per cent to US$37.05 a barrel. Over the week, Brent fell by 6.3 per cent and Nymex fell by 8 per cent.

• The latest purchasing managers’ data confirms that the Australian economic recovery continues. And that recovery will get a major kick along from Tuesday’s Federal Budget. There is no need for the Reserve Bank to contemplate trimming rates further.

• New vehicle sales fell again in September, but there appears light in the tunnel. Western Australia and the two territories reported higher sales in September compared with a year ago. Low interest rates, more expensive used cars, a possible investment allowance in the Federal Budget and measures to boost employment all could drive new vehicle sales higher.

What do the reports and figures show?

Petrol prices

• The national average price of unleaded petrol rose 1.3 cents to 116.5 cents a litre last week according to the Australian Institute of Petroleum. Metropolitan prices rose 2 cents to 115.9c/l with regional prices down 0.4c to 117.6c/l.

• Average unleaded petrol prices across states and territories over the past week were: Sydney (up by 5.7 cents to 114.1 c/l), Melbourne (down by 5.6 cents to 114.4 c/l), Brisbane (down by 0.4 cents to 112.5 c/l), Adelaide (up by 24.1 cents to 128.7 c/l), Perth (up by 0.6 cents to 117.3 c/l), Darwin (steady at 117.6 c/l), Canberra (down by 0.6 cents to 120.8 c/l) and Hobart (down by 0.1 cents to 123.4 c/l).

• The smoothed gross retail margin (2-month rolling average) for unleaded petrol fell from 17.93 cents to 16.83 cents (24-month average: 14.8 cents a litre).

• The national average diesel petrol price fell by 0.2 cents to 119.0 cents a litre over the past week. The metropolitan price fell by 0.2 cents to 117.6 cents a litre and the regional price was down 0.1 cents to 120.2 cents a litre.

• Last week, the national average unleaded Terminal Gate Price (TGP) rose by 1.7 cents to 104.3 cents a litre. The terminal gate diesel price rose by 0.9 cents to 99.5 cents a litre.

• Today, the average unleaded TGP stands at 104.9 cents a litre, up 1.1 cents over the week. The terminal gate diesel price stands at 99.8 cents a litre, up 0.6 cents a litre over the week.

• MotorMouth records the following average retail prices for unleaded fuel in capital cities today: Sydney 121.0c (up 11.4c on the week); Melbourne 112.6c (down 4c); Brisbane 119.8c (up 10c); Adelaide 115.1c (down 19.4c); Perth 110c (up 4.1c); Canberra 120.9c (unchanged); Darwin 117.6c (unchanged); Hobart 123.2c (unchanged). Across capital cities, on the week petrol averaged 115.9 cents/litre, up 2.7c.

• Last week the key Singapore gasoline price fell by US$2.65 a barrel or 5.5 per cent to US$45.85 a barrel. In Australian dollar terms, the Singapore gasoline price fell by US$4.46 or 6.5 per cent to $64.42 a barrel or 40.39 cents a litre.

New vehicle sales – September

• New vehicle sales totalled 68,985 units in September, down 21.8 per cent on September 2019.

The Federal Chamber of Automotive Industries reported:

• “The September 2020 market of 68,985 new vehicle sales is a decrease of 19,196 vehicle sales or -21.8 per cent on September 2019 (88,181) vehicle sales. September 2020 had 29.5 selling days compared to September 2019 with 24.6, but this resulted in a decrease of 921.1 vehicle sales per day.

• The Passenger Vehicle Market is down by 7,180 vehicle sales (-28.8 per cent) over the same month last year; the Sports Utility Market is down by 9,207 vehicle sales (-22.0 per cent); the Light Commercial Market is down by 2,485 vehicle sales (-13.6 per cent); and the Heavy Commercial Vehicle Market is down by 324 vehicle sales (-10.2 per cent) versus September 2019.

• Toyota was market leader in September, followed by Mazda and Hyundai. Toyota led Mazda with a margin of 5,936 vehicle sales and 8.7 market share points.”

• Sales across states and territories over year to September: NSW (down 6.0 per cent); Victoria (down 57.7 per cent); Queensland (down 7.9 per cent); South Australia (down 22.1 per cent); Western Australia (up 1.5 per cent); Tasmania (down 34.2 per cent); Northern Territory (up 10.6 per cent); ACT (up 3.4 per cent).

• The rolling annual total of new vehicle sales in September was 896,294, down 17.3 per cent on the year and the lowest annual total in 17 years. Rolling annual passenger car sales fell by 29.7 per cent on the year with SUVs down 10.5 per cent and “other vehicles” down 13.9 per cent.

• In the year to September, SUVs accounted for a record 65 per cent of combined SUV and passenger vehicle sales.

IHS Markit Purchasing Manager indexes (PMI) – September

• The IHS Markit services PMI rose from 49 in August to 50.8 in September. The composite PMI rose from 49.4 in August to 51.1 in September. A reading above 50 indicates an expansion in activity.

• According to IHS Markit, “The rebound in activity was driven by services business activity returning to growth, supported also by a sustained expansion in manufacturing output. Similar trends were evident for new orders, with inflows of services new business rising slightly amid an easing of COVID-19 restrictions.

• Aggregate employment contracted further during September, with the pace of decrease quickening to the fastest since May. However, cuts to workforce numbers were limited to the service sector as manufacturers added more workers. The presence of capacity pressure also diverged between the two monitored sectors, with manufacturing recording a solid rise in backlogs of work while services reported a further decline.

• Overall input prices increased for a fourth month running, with cost inflation recorded across both manufacturing and service sectors. Output charges declined, however, led by a decrease in service fees amid greater competitive pressure. On the other hand, manufacturers were able to pass on partially higher expenses to their clients via an increase in selling prices.”

Used vehicle market – Week ended October 2

• Data analytics firm, Datium Insights, provides a weekly report on the used vehicle market. In the week to October 2, used motor vehicle prices rose by 4.4 per cent after rising 2.1 per cent in the previous week.

• In the latest week supply rose 7 per cent after falling 10.4 per cent the prior week. Clearance rates rose 1.1 per cent. Datium notes that “stock remains considerably low.”

• Prices of SUVs rose 5 per cent with passenger vehicles up 4.7 per cent and light commercial rose 1 per cent.

• By vehicle, Datium reported, “Prices for top 15 traded vehicles were largely positive with the Toyota Hiace (+10.2 per cent) and Volkswagen Golf (+8.2 per cent) leading increases. Mitsubishi Outlander (-6.1 per cent) and Isuzu D-MAX (-4.8 per cent) were all down”.

What is the importance of the economic data?

• Weekly petrol prices data are compiled by ORIMA Research on behalf of the Australian Institute of Petroleum (AIP). National average retail prices are calculated as the weighted average of each State/Territory metropolitan and non-metropolitan retail petrol prices, with the weights based on the number of registered petrol vehicles in each of these regions. AIP data for retail petrol prices is based on available market data supplied by MotorMouth.

• Melbourne Institute developed a monthly inflation indicator to give markets and policy makers a more regular update on inflation trends. Based on the ABS methodology for calculating the quarterly consumer price index, the Melbourne Institute Monthly Inflation Gauge estimates month-to-month price movements for a wide-ranging basket of goods and services across the main capital cities of Australia.

• IHS Markit undertakes a survey of purchasing managers across manufacturing and services sector. The ‘flash’ or ‘early/preliminary ’readings provide timely information on the economy. As such, the survey is valuable for investors.

• Data analytics firm, Datium Insights, provides a weekly report on the used vehicle market. The data assists in gauging the strength of a key component of consumer spending and provides insights on the Autos and components sector of the sharemarket.

• The Federal Chamber of Automotive Industries releases estimates of new vehicle sales on the third business day of the month. The figures highlight the strength of consumer spending as well as conditions facing auto & components companies.

What are the implications for investors?

• Petrol prices remain historically low, boosting the spending power for Aussie motorists. Further support for retail spending is expected from Tuesday’s Federal Budget.

• Demand for second hand cars remains firm during the pandemic with Aussies preferring to drive their own cars rather than catch public transport due to health concerns. But the supply of vehicles remains volatile – lifting 7 per cent last week after falling 10.4 per cent in the prior week.

• New vehicle sales are expected to lift later this year and through 2021 with further easing of domestic travel restrictions. With foreign travel out of the question for now, consumers will favour purchases such as cars as well as lifting travel to regional holiday spots.

Published by Craig James, Chief Economist, CommSec

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