Vital Signs: Business Conditions are Peachy, So Why aren’t Businesses Investing?
Richard Holden, 11 Nov 17

Outlook not so great? Tracey Nearmy/AAP

Vital Signs is a weekly economic wrap from UNSW economics professor and Harvard PhD Richard Holden (@profholden). Vital Signs aims to contextualise weekly economic events and cut through the noise of the data affecting global economies.

This week: interest rates remained on hold as housing finance fell to a new low, conditions remain good for business, but they’re still not investing, and the US economy will likely miss Janet Yellen.

On Melbourne Cup day, the RBA kept interest rates on hold at 1.5%, yet again. And why wouldn’t it?

There has been some progress in curtailing the runaway housing market, inflation is still low, and upcoming changes to the way inflation is measured seem set to push it lower than it would otherwise have been.

The Australian Bureau of Statistics (ABS) will now put more weight on rent and utilities and less on food and non-alcoholic beverages, beginning in December. Macquarie Securities analyst Justin Fabo suggested this would have lowered the September quarter CPI by 25 basis points if the new method had been used.

Moreover, with Amazon set to enter Australia – and the Australian Competition and Consumer Commission blessing its ability to charge low prices without running afoul of competition laws – there could be more downward pressure on inflation. Note to ABS: put online shopping properly in the CPI basket!

ABS figures released Thursday showed that housing finance for September fell 3.6% to A$32.5 billion (in seasonally adjusted terms) – the lowest it has been since April. In fact, the year-on-year level is unchanged.

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