Katrina Parrington

Mortgage & Finance Broker, Elders Home Loans – Northern Territory – P. 8932 8900

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  • Elders Home Loans

  • Katrina Parrington

    I am a long term Centralian resident with more than 18 years experience in the financial services industry. Initially, in Real Estate in Adelaide before pursuing a career with Elders Insurance Alice Springs and lending roles with major banking institutions where I gained extensive experience in Home Loans and Commercial Lending here in the Alice and in Darwin.

    I have a unique set of skills that ensures I understand your lending needs and can provide you with professional advice and personal service.

    Tel: 08 8953 8800
    email: katrina.parrington@eldershomeloans.com.au

Flooding may propel rates higher

Posted by Katrina Parrington on January 21, 2011

By Adam Smith | 17/01/2011

Queensland’s floods may have the unexpected economic impact of actually raising interest rates, a new report by Deutsche Bank indicates. The bank’s assessment of the flood’s impact on the Australian economy estimates first quarter GDP growth will be reduced by 0.5%. However, this slowdown may not be enough to keep rates on hold, due to flood-related inflationary pressures.

“Given Queensland is a key producer of supply-constrained commodities, we are more inclined to view the ultimate economic impact of these floods through the lens of an inflationary supply shock,” the bank’s report said.

The report has predicted that supply shortages will put upward pressure on commodity prices throughout the year, leading to inflationary shock.

“The flooding in Queensland is likely to have an identifiable impact on the Consumer Price Index in our view,” the report stated. “The clearest impacts should be seen in food prices – specifically fruit and vegetables as well as meat prices.”

According to Deutsche Bank, this inflationary impact may trigger the Reserve Bank to raise the official cash rate. However, the bank does not expect this to happen in the immediate future. The report estimates the flooding’s impact on the CPI to begin to be noticeable by the March quarter, and said uncertainty over the scope of this impact should prompt the RBA to leave rates untouched for the first quarter.

“The disruption to activity and the uncertainty generated by the floods will no doubt feature in the RBA board’s February discussion. This uncertainty also makes it less likely that the bank tightens again before the second quarter,” the report stated.

CommSec economist Savanth Sebastian believes rates are unlikely to move in the near term, but agrees that inflationary pressures may increase as rebuilding efforts get underway in Queensland.

“Looking further out, the boost to the economy provided by the ‘post-war-style’ rebuilding effort will be a positive for the economy and could nudge inflation up by 0.15-0.2% as people replace all of their goods and billions is spent on repairing infrastructure,” Sebastian told the Herald Sun.

“Shortages of labour created by workers moving up to Queensland could also push wages up, so interest rate rises are likely later in the year,” he said.

Annette Beacher, head of Asia-Pacific Research for TD Securities, agrees that upward pressure could be placed on inflation as a result of the floods.

“The consequences of the Queensland floods leaves inflation risks firmly tilted to the upside, where the immediate fallout is a likely spike in food price inflation in the March quarter,” Beacher said. “However, with vast tracts of the Brisbane CBD severely affected by the floods, the concentration of infrastructure to be repaired could exacerbate already stretched labour and building materials, hence the upside to inflation could last longer than the temporary food price spike. We will be closely watching the Inflation Gauge on the coming months for concrete evidence of these assertions.”

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