Steady as she goes on rates

The Reserve Bank is expected to leave rates on hold, making this the first Melbourne Cup day in six years it will have left rates steady.

The Cup board meeting is traditionally favoured for rate moves because it comes just days after the release of the September quarter consumer price index, which provides the first official reading on inflation each financial year.

This year the bank was so confident the inflation rate would not trouble it that it moved rates ahead of the release, in early October. Inflation has been at or below 2 per cent all year, even after the carbon tax, well down on the rates of 3 per cent or more consistently recorded all last year.

The bank believes its three rate cuts this year - May, June and October - are yet to have their full effect. It believes it is too early to tell whether the economy needs another set of back-to-back cuts. It is also conscious global economic conditions have improved since its October meeting.

Complicating the board's deliberations are retail figures released on Monday showing no real growth in spending since the carbon tax compensation payments delivered in June.

September quarter retail spending was up just 0.6 per cent on the June quarter, but all the increase was accounted for by an 0.7 per cent lift in prices, meaning the volume of goods bought actually fell. Spending on food rose 1.3 per cent, but food prices had risen 1.6 per cent, led up by much higher prices for fruit and vegetables, allowing the Bureau of Statistics to conclude the volume of food bought slipped 0.3 per cent.


''Consumer demand and retail spending remain soft but are ticking over with no signs of further weakening,'' Westpac economist Matthew Hassan said.

''Consumers are worried about losing their jobs in a softening labour market, income growth is slowing and people are keen to pay down debt. The response to recent rate cuts has been tepid.''

Purchases of food rose just 3 per cent in the year to September, purchases of takeaway and restaurant food 3.5 per cent, and purchases of household goods 3.2 per cent. Department store sales rose only 1.4 per cent, failing to keep pace with population growth. ''Clothing, footwear and personal accessory retailing'' was the only category identified by the Bureau where spending grew strongly, up 7.7 per cent over the year after adjusting for inflation.

Stark differences have emerged between the states, with inflation-adjusted spending growing at annual rates of 8.9 and 4.6 per cent in Western Australia and Queensland and at 5.8 and 5.2 per cent in NSW and the ACT. But spending in Victoria grew by only 1.1 per cent. Spending in Tasmania fell 2.7 per cent.

The ANZ's count of job advertisements slid a further 4.6 pre cent in October, its seventh consecutive monthly decline. About 145,000 jobs per week were advertised in October, well down on the 170,000 a week a year before.