Australia's Producer Prices Rise 2% on Energy, Water

By Jacob Greber

Oct. 20 (Bloomberg) -- Prices paid to Australian producers rose in the third quarter by almost twice as much as economists forecast as costs for energy, water and construction climbed.

The producer price index advanced 2 percent after rising 1 percent in the second quarter, the Bureau of Statistics said in Sydney today. It was the biggest increase since the series began in 1998. The median estimate of 14 economists surveyed by Bloomberg was for a 1.2 percent gain. The index climbed 5.6 percent from a year earlier.

The record increase may stoke speculation central bank Governor Glenn Stevens won't repeat this month's decision to cut the benchmark interest rate by 1 percentage point to 6 percent, the biggest reduction since a recession in 1992. Prices for imported goods may climb in coming quarters after the Australian dollar tumbled 21 percent against the U.S. currency this year.

The third-quarter gain in producer prices was ``driven by higher import prices in line with the weaker Australian dollar,'' Riki Polygenis, an economist at Australia & New Zealand Banking Group Ltd. in Melbourne, said ahead of today's report.

The Australian dollar rose to 69.75 U.S. cents at 11:37 a.m. in Sydney from 69.56 cents immediately before the report. The yield on the benchmark two-year government bond fell 2 basis points to 4.26 percent. A basis point is 0.01 percentage point.

Energy, gas and water costs rose 7.4 percent in the third quarter, and construction gained 1.8 percent, today's report showed.

Unemployment Rises

Annual core inflation probably accelerated in the third quarter to 4.8 percent from 4.5 percent in the previous three months, according to the median estimate of 16 economists surveyed by Bloomberg News. Stevens has said the rate will probably peak in the fourth quarter.

The government will publish the consumer prices index on Oct. 22. The central bank aims to keep annual price gains between 2 percent and 3 percent on average.

Governor Stevens said on Oct. 7 that he expects the inflation rate to fall in 2009 as the nation's 17-year economic expansion slows. Gross domestic product rose 0.3 percent in the second quarter, the slowest pace in more than three years.

Unemployment rose to 4.3 percent last month from 4.1 percent in August as companies such as Qantas Airways Ltd. and Ford Motor Co. fired workers.

Bank Deposits

Signs that growth is cooling faster than forecast by the central bank was a key reason Governor Stevens cut the overnight cash rate target this month by twice as much as economists forecast. Policy makers have reduced borrowing costs by 1.25 percentage points since early September.

The deepening worldwide financial crisis prompted the Australian government to guarantee bank deposits last week, while the central bank added money into the financial system.

Prime Minister Kevin Rudd also announced A$10.4 billion ($7.2 billion) in grants to seniors, families and first-home buyers, and said it may provide further stimulus.

The measures ``certainly make it much less likely that we'll get further aggressive Reserve Bank easing, given the fiscal stimulus is equivalent to a few rate cuts,'' Adam Carr, a senior economist at ICAP Australia Ltd. in Sydney, said ahead of today's report.

Stevens will lower the benchmark rate by half a point to 5.5 percent on Nov. 4, according to 14 of 16 economists surveyed by Bloomberg late last week.

To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net