At the Fruity Blooms food stall across the street from Australia’s central bank, the recent return of one customer may offer the biggest clue that inflation pressures are easing.
Reserve Bank of Australia Governor Glenn Stevens has resumed buying bananas at the stand since the price fell to A$1 ($1.03) in the past three months from as high as A$3 last year in the aftermath of crop damage in the nation’s north, according to the Fruity Blooms owner.
“He used to buy a banana a day off me,” then stopped coming, said David Bisoglio, who’s run the stall at Martin Place in Sydney for the past eight years. “In the last three months he’s come back,” said Bisoglio, 32. “He makes the comment ‘oh, it’s nice to see bananas are back to the normal price.’”
Across Australia, the breaking of nearly a decade of drought and a historically mild summer have caused a glut of fresh fruit and vegetables, driving down market prices by about 25 percent from a year ago. That may help pave the way for Stevens to cut interest rates, as the nation’s inflation-linked bond market underscores the retreat in price pressures.
The gap between 10-year inflation-linked bond yields and benchmark notes touched 2.46 percent on April 18, the lowest level in more than three months. The breakeven rate shows investors’ expectations for consumer price gains over the next decade are near the mid-point of the RBA’s 2 percent to 3 percent target. The gap was 2.59 percent at 12:28 p.m. in Sydney.
“It looks like there’s quite a big fall in fruit and veg prices coming through in the first quarter and part of this is the final leg of the banana story,” said Michael Blythe, chief economist in Sydney at Commonwealth Bank of Australia who estimates consumer prices rose 2.1 percent last quarter from a year ago, and core inflation was 2.4 percent. “These numbers don’t look like they’ll be standing in the way of a rate cut.”
The central bank, in minutes of its April 3 policy meeting released this week, said the board will review the inflation outlook when it next meets May 1. “If slower growth in demand could be expected to result in a more moderate inflation outcome, then a case could be made for a further easing of monetary policy,” policy makers said. First-quarter consumer price index data are due April 24.
Stevens declined to comment on visiting the fruit stall, a spokesman for the central bank said.
Australia’s central bank supplements national statistics data and business surveys by sending staff out to interview companies across the country to help it form an assessment of the economy. Unlike most advanced nations, Australian inflation data are published quarterly, complicating the RBA’s task of gauging price gains. The bank has pressed for monthly releases.
Wholesalers, farmers and industry analysts say Australia is harvesting its biggest crops of apples and avocadoes on record and the largest stock of mangoes in a decade.
“Just about everything has been in oversupply,” said John Roach, head of an association of wholesalers at Melbourne’s fruit and vegetable market, which sells price data to the RBA and the Australian Bureau of Statistics. “The price can only do one thing in that situation: it crashes.”
Retail prices for potatoes and onions last week had fallen as much as 40 percent from a year earlier, plums and peaches were down about 33 percent, and tomatoes were about 20 percent cheaper, said Roach, chief executive officer of Fresh State Ltd.
Woolworths Ltd. and Wesfarmers Ltd.-owned Coles, the nation’s largest retailers, sought to capitalize on the glut with price-reduction campaigns. Coles announced cuts of as much as 50 percent in some fruit and vegetables at the end of January as it battles Woolworths for the nation’s frugal shoppers.
“The one wildcard is the Coles effect,” said Blythe, a former RBA economist. “While wholesale prices are down, we might see a bigger impact on retail prices, which is what’s more relevant for the CPI.”
Fresh produce prices dropped almost 20 percent from a year earlier during the three months ended April 1, with bananas, pumpkins and tomatoes “significantly impacted,” Woolworths said in third-quarter results today.
Food and non-alcoholic drinks, including fresh fruit and vegetables, meat, dairy, and bread, make up 16.8 percent of Australia’s CPI basket, the second-largest category after housing.
A mile southeast of the city’s Olympic stadium, at Sydney’s main fruit and vegetable markets that handle about 2.5 million metric tons of produce valued at A$3 billion a year, traders say they’re seeing weak demand.
“When bananas don’t sell at 99 cents a kilo, discretionary spending has gone,” said Harry Theoharous, 50, checking cartons of the fruit stacked in ripening chambers at Moraitis Fresh Australian Bananas Pty.
Australia has the highest borrowing costs among major developed nations, at 4.25 percent, as the RBA seeks to temper a rise in consumer debt that tripled in the past 20 years and stood at 149.6 percent of disposable income in the fourth quarter.
Sixteen months ago, nearly two months’ worth of rain fell in 48 hours near Linton Brimblecombe’s farm in the Lockyer Valley, a fertile agricultural area west of Brisbane. Floods inundated farmland and killed nearly two dozen people. Streams have not dried up since, a circumstance not seen since the early 1980s.
“Our valley’s got abundant supply of water, which means that there’s an oversupply of produce,” said Brimblecombe, who farms 400 hectares of sweet corn, mung beans, navy beans and onions.
Back in Sydney, at his floral and fruit stall across from the central bank, Bisoglio said it had crossed his mind to ask Governor Stevens whether falling banana prices meant a rate cut is in the offing.
“I’ve been very tempted,” he said. “I would love to say something, but I bite my tongue.”