Lack of consumer confidence continues

THREE reports that hit the deck last week are instructive about where the economy is headed.

First, the tip is that household gas prices will skyrocket once Curtis Island is functioning because our gas will be heading overseas earning export dollars.

The second was the news from the Australian Bureau of Statistics that consumer price increases in the September quarter translate to a 2.3% CPI rise for the year to September.

Third, the ANZ/Roy Morgan consumer confidence index showed that confidence was about 1.1%, close to its long-term average, an average that reflects the cautiousness Aussies have been displaying since the GFC in 2007-8.

The CPI result is great news for borrowers, that's for sure.

The Reserve Bank was right in keeping interest rates steady in early October and will do so for months to come.

It was probably good news for share investors as well.

The S&P/ASX200, which measures the share value of stocks in the top 200 companies, got off the floor and gained 1.17% at the news.

Not great, but it did see an arrest of a worrying slide in market value that's been threatening to herald the beginning of another bear market sleepfest.

So why did the CPI cheat the doomsayers who've been reckoning on an above 3% result?

Two things essentially: electricity prices fell 5.1% in the quarter as a direct result of the scrapping of the carbon tax and automotive fuel prices fell 2.5%.

Against this good news story is the expectation that cooking with gas is going to cost hundreds of dollars more in the years to come.

Will it affect how the Reserve Bank looks at the world?

Probably not, as the board ignores volatility in its assessment of quarterly CPI results.

For example, because power and fuel are volatile, the board would have discounted them in their thinking and come up with an adjusted CPI figure of about 2.5% for the year to September.

Still good, by the way, as it sits midway in the Reserve Bank's target range for inflation.

If you then factor in the fairly flat consumer confidence, you've got not only a cast-iron guarantee that the RBA will keep interest rates on hold going forward but concern that the economy might actually contract.

Lack of consumer confidence translates to hands in pockets, which in turn translates to a struggling retail sector.

Maybe the dramatic rise in property values in the south might encourage a boost in confidence and spending.