Prediction for Reserve Bank - Leave rates at 4.25%

This prediction could be wrong. For the first time in two months, the Goat-a-meter is pointing to the negative as far as interest rates are concerned....but only just.
Because of the small amount of negativity, I believe the Reserve will hold their fire this time, but if there is a second negative month, I will definitely be predicting a cut next month.
Anyway, the goat is going out on a limb here. Every economist seems to be pointing to a cut this month. It will all depend on the business people on the board.
Which brings me to the board. Who would be voting....
Glenn Stevens (Economist)
Philip Low (Economist)
Martin Parkenson (Government)
John Akehurst (Energy)
Jillian Broadbent (Retail)
Roger Corbett (Media, Pharama, Retail)
John Edwards (Academic)
Heather Riddour (Business)
Catherine Tanna (Gas)

CPI for March Quarter :0.1% for quarter, 1.6% Since March '11

Shock news today over the CPI figures. Surprisingly low, mainly due to the segments "Food and non alcoholic beverages" and "Recreation and Culture" (which both experienced drops of over 2% for the quarter)
Pundits are now factoring a cut of 0.25% at the May Reserve Bank Meeting with a 100% probability

However, looking at the raw figures from the ABS, the biggest drop (of over 30%) was in Fruit products.
This strikes me as a movement to normal prices after the temporary effect of the Queensland Floods/Hurricane of 2010/2011 (which elevated fruit prices in 2011).

The "Recreation and Culture" drop was mainly caused by international and domestic travel prices effects (probably due to the increase in the Australian dollar and the fact the rest of the world is in the toilet)

So in my opinion, this low number could be construed as just a return to equilibrium. I wonder if th Reserve will see it that way.

Anyway, according to my model, I still have the Reserve holding rates steady in May. There will be further updates as we get closer to the meeting date however. Things change quickly in Finance after all.

IT Markups in Australia

Some articles in today's press moaning about IT product pricing in Australia and how we are being ripped off by unscrupulous global IT vendors like Apple and Adobe. A Federal parliamentarian is even called for another inquiry into IT pricing.

For mine, it's just calling for more money thrown into dodgy reports that will offer no real solutions. Save the 5 million and go back to basics.
The fact of the matter is every economist/financial analyst knows why it’s more expensive in Australia than the American markets (IT centric, but you can apply these rules to any industry)
1. Size of the market : Bigger market = more suppliers = more competition = reduced markups = lower prices
2. Lack of a domestic IT investment: Australia has basically no domestic IT market to counteract the offshore providers and so is in no position to influence prices with lower priced local competitors.
3. WACC – With interest rates high relative to the US, the average cost of capital in Australia is higher than in US (even in IT which is financed mainly through equity rather than debt). Hence business need to make higher returns to make economic profits (exceed the WACC of a company) in Australia. In a small market like ours, the only way to do that is to increase prices.

So there you go. The only way to bring prices down would be to invest in a domestic IT industry and/or reduce interest rates (can’t do much about the size of the market). Both of which are pretty much beyond the Government. So another inquiry will do nothing except throw some cash down the drain.

Sydney Morning Herald Price Increase - Rubbish!

What is Fairfax doing? News today indicates that the printed version of the Sydney Morning Herald has increased 20 cents from $1.50 to $1.70. That is a price increase of 13.33% over two years (as the previous increase was in early 2010)

When inflation in Sydney is running at around 3.2 a year , this is a blatant cash grab by Fairfax.

And ultimately, it will affect circulation. Price elasticity of newspapers, while quite inelastic originally, has become a lot more elastic due to increase in substitutes (the Internet is mainly to blame for that).

Also, I have noticed the quality of the SMH has decreased in recent times, with more bylines from Associated Press and Agence France-Prees articles being added to the international news sections, instead of their own journalists.

Not only that, advertising space in the newspaper has increased rather than decrease. It is not unusual to see a large amount of full page ads in the paper everyday.

I have been buying the SMH everyday for the last 10 years and this latest price rise may send me to a competitor.