MNI 5 Things: Australia AI Mfg Points To Rising Inflation

--AI Manufacturing Index Expands for 19 Straight Months

By Sophia Rodrigues

     SYDNEY (MNI)  - Following are the five main observations we made from

Australian Industry Group's Performance of Manufacturing Index for April

published Tuesday:

     --All activity and other sub-indexes fell in April except selling prices

which rose 5.3 points to 57.5. While monthly data can be volatile, continued

expansion in this sub-indexes shows manufacturers are now passing on cost

pressures, especially energy costs, on to their customers. If this continues, it

would have impact for inflation outlook and thus for the Reserve Bank of

Australia's monetary policy.

     --Five of the seven activity sub-indexes expanded in April, though the pace

slowed versus March. Exports slipped into contraction for the first time since

October last year due mainly to food and beverages, and petroleum and coal

sub-sectors. Inventories fell 6.2 points to be mildly into contraction at 49.8

points.

     --Four of the eight sub-sectors reached record high in trend terms. This

included the large machinery and equipment sub-sector (61.2 points) where

capacity utilization remains particularly high and suggests more capital and/or

labor investment will need to be made. The large metal products sub-sector is

seeing increased local demand from east coast infrastructure projects, energy

projects and the mining sector. The largest food and beverages sub-sector eased

slightly to 56.7 points but continues its long run of expansion since early

2013.

     --New orders fell 5.0 points to 61.6, easing somewhat from a record high in

March but continues to indicate strong growth prospects for the manufacturing

industry for the rest of the year. Overall, the manufacturing index expanded for

19 straight months despite falling 4.8 pints to 58.3 in April.

     --Capacity utilization eased to 79.9% but this was from a record high in

March. The current level is still high by historical standards and continues to

point to more capital and labor investment to meet future demand.

--MNI Sydney Bureau; tel: +61 2-9716-5467; email: sophia.rodrigues@marketnews.com

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