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Live updates: ACCC warns of east coast gas shortfalls by 2027, Santos slips as Aramco dismisses takeover reports, ASX down

When making predications about inflation and interest rates, economists have generally focused more attention on underlying inflation rather than headline inflation.

CBA head of Australian economics Gareth Aird writes that headline inflation is just as important for the policy outlook as underlying inflation in 2024-25.

"The headline rate of inflation from the September quarter takes on added importance because on our forecasts it will sit within the RBA's target band (of 2 to 3 per cent)," he notes.

"My colleague Stephen Wu calculated that the combined impact of the Commonwealth and State Government electricity rebates will shave two thirds of a percentage point off Q3 24 CPI.

"On our forecasts this will drop the annual rate of headline inflation to a little under 3 per cent where it should broadly sit over 2024/25."

Mr Aird says while it is true that headline inflation is 'artificially' lowered by the electricity rebates, CBA "do not expect a A75 rebate per quarter to stimulate demand more broadly in the economy".

"And actual inflation outcomes play a very important role in influencing the future path of inflation," he says.

He also argues that headline inflation plays an important role in influencing inflation expectations, indexation and wage settings.

"Lower headline CPI will also put downward pressure on wages growth in 2025 given the rate of headline inflation is often used as a starting point in a lot of wages negotiations," he says.

But in the very near‑term financial market participants will be focused on the upcoming Q2 CPI due for release on July 31.

"If the labour market were to further loosen in the June labour force survey the RBA may leave rates on hold in August with a 1.0%/qtr Q2 24 trimmed mean outcome," he notes.

"But if the labour market showed no signs of additional loosening in June the RBA may feel compelled to pull the rate hike trigger in August.

"Our base case for the RBA to sit on hold in August and to deliver a first rate cut in November is premised on both Q2 24 trimmed mean of 0.9%/qtr followed by 0.7%/qtr in Q3 24 and an ongoing upward trend in the unemployment rate."

Fresh data out from the ABS shows just how effective rising interest rates have been at reducing consumer demand.

The data, derived from actual transactions through the banking system, show consumer spending rose just 0.1% overall over the past year.

Indeed's Asia-Pacific economist Callam Pickering says that's despite rising prices and strong population growth, meaning the average Australian household has cut back dramatically.

"Spending continues to be driven by non-discretionary or essential items, up 1.8% over the past year," he notes.

"Spending on these items is often hard to avoid — they are 'essentials' for a reason — and so the consumption of these goods and services tend to be less sensitive to changes in price or economic conditions. The reason the current cost-of-living crisis has been so damaging is precisely because it's been concentrated among essentials.

"And then we have discretionary spending, down 1.9% over the past year, which reflects households trying to save money from an increasingly tight household budget.

"In other words, Australian households are having a lot less fun with their hard-earned cash than they used to. Spending on recreation & culture was down 2.8% over the year, with spending at hotels, cafes & restaurants down 3%."

Mr Pickering says it's still possible the Reserve Bank might hike interest rates next month, despite signs many households are struggling to make ends meet.

"Subdued household spending remains a concern for the RBA given it accounts for a large share of economic activity. Right now though, that's being overshadowed by continued tightness in the labour market and inflation that remains uncomfortably high.

"It's quite possible that we may only be a month away from another rate hike, following some nasty inflation figures towards the end of June."

Hello and happy Friday Natty! Always great to hear from you.

Thanks so much for your kind words about the beauty dupe deep dive (try saying that five times fast), and for giving me another reason to talk about the stories. 🤓

It was a joint effort with my very talented colleague Emilia Terzon, and I know she won't mind me saying we've learnt *a lot* about intellectual property, trademarks and patents.

Full disclosure, I am a long-time observer and participant in the beauty world (if you need proof, it's some of what's in my actual makeup bag that ended up displayed in this story) and the feedback we've received on the stories has been wide-ranging and generated plenty of discussions online.

If you missed it, you can catch up on the series of stories here:

• After being sued twice, MCoBeauty has become a multi-million-dollar empire built on beauty dupes
• In the world of beauty duping, patents offer little protection and small businesses are most vulnerable
• MCoBeauty follows a rigorous process when it dupes cosmetics. Here's what it looks like

And before I hop off my self-promotion bandwagon for the morning, if anyone joining us on the blog has information or a story they'd like to share about the world of beauty dupes (or anything else, for that matter), I'm all ears.

Get in touch by dropping me a line at Ainsworth.Kate@abc.net.au or kateainsworth@protonmail.com if you'd prefer a more secure option.

A new report from the ACCC has warned the gas shortage facing eastern states is now worse than what it predicted six months ago, forecasting a shortfall in supply from 2027.

In its December 2023 interim report, the ACCC said Australia was likely to have "sufficient supply" of gas throughout the transition towards renewable energy until 2028.

Now in its June interim report, released today, the ACCC said while there is enough gas supply in the short-term, shortages are possible from 2027 unless more supply comes online.

"This is earlier than our last forecast (in December 2023) of a possible shortfall from 2028, reflecting lower forecast supply due to delays in anticipated regulatory approvals for new projects and problems with legacy gas fields," the report said.

The warning from the ACCC comes after the Australian Energy Market Operator (AEMO) forecasted in March that southern states would face gas shortages from 2028.

The ACCC said that long-term solutions to address the shortages would require "a range of policy and market responses".

"Amongst these, there is an urgent need to develop new sources of gas production and supply," the report said.

"Ensuring efficient supply to the east coast market would also be supported by increased competition in upstream production."

The full report is available on the ACCC's website.

After picking up 4.6% during the trade yesterday, shares in Santos have fallen by 0.8% this morning to $7.95 (as of 10:55am AEST).

Shares in the gas company had soared yesterday on reports Saudi Aramco and Abu Dhabi National Oil Company (ADNOC) had both been considering making offers for the business.

But overnight, the reports were dismissed as "inaccurate" by Aramco, which is seeing Santos's shares dipping during the first hour of trade today.

The rumoured takeover offers come after Santos and Woodside Energy scrapped talks of a merger deal back in February that would have created a global oil and gas giant worth around $80 billion.

The ASX 200 has opened 0.3% lower on Friday to 7,812 points as of 10:25am AEST.

(For live figures, head to the top of the blog.)

So far only one sector is in positive territory, and even then, it's only just there: utilities is 0.1% higher.

Healthcare and consumer staples are both flat, while the remaining eight sectors are in the red.

Education and real estate are both down 0.7%, while industrials is 0.6% lower. Financials and tech have both shed 0.3%, basic materials and consumer cyclicals are 0.2% lower, and energy has dropped by 0.1%.

As for the top performers so far:

• West African Resources +4.7%
• Magellan Financial +3.8%
• Graincorp +1.5%
• Red5 +1.4%
• Flight Centre +1.2%

And at the other end of the scale:

• Seven Group Holdings -3.6%
• Boss Energy -3.6%
• Centuria Capital Group -2%
• Tabcorp -1.4%
• Credit Corp Group -1.4%

Overnight, the Australian dollar has climbed to its highest level since January 2.

It's buying 67.3 US cents, as investors weigh up the chances of an RBA rate hike in August against the potential of a rate cut by the US Federal Reserve in September.

As NAB wrote in its morning note:

"Limited overnight price action with the US out for Independence day, though of note the AUD has held Wednesday's range break out to close in North America at its highest level since 2 January, amid further broad based USD slippage in what has been a 'risk-on' European day."

Saudi Aramco says reports that it is considering making an offer for Santos are inaccurate.

Yesterday, Bloomberg News reported that Saudi Aramco was considering an offer for the Australian gas giant, as was Abu Dhabi National Oil Company (ADNOC).

But a spokesperson for Aramco has dismissed the media reports in a brief emailed statement:

"With reference to recent media reports claiming that Aramco is considering an offer for Santos, the company can confirm that such claims are inaccurate," the spokesperson said.

A spokesperson for Santos said the company doesn't comment on media speculation, and ADNOC has declined to comment.

Santos shares rose by 4.2% to $8 during trade yesterday.

It was an eventful day in the world of finance yesterday, which kicked off with reports from Bloomberg that Saudi Aramco and Abu Dhabi National Oil company were separately eyeing up  bids from Santos.

Iron ore prices also strengthened, which boosted the federal government's bottom line and saw a rise in mining company shares.

Lucky for us, Alan Kohler expertly wrapped it all up in under two minutes.

And if you're really keen to look back on the day's events as they unfolded, you can find yesterday's blog here 👇

My ABC colleagues over in the UK (and a couple here in Australia) are currently helming a dedicated blog for all things related to the election, with exit polling suggesting Labour will claim a landslide majority win.

You can get the latest updates from the team by following the below link:

• ASX 200 futures: -0.2% to 7,799 points
• Australian dollar: steady at 67.25 US cents
• S&P 500: +0.5% to 5,537 points (Wednesday)
• Nasdaq: +0.9% to 18,188 points (Wednesday)
• FTSE: +0.9% to 8,241 points
• EuroStoxx: +0.6% to 517 points
• Spot gold: steady at $US2,356/ounce
• Brent crude: +0.2% to $US87.55/barrel
• Iron ore: flat at $US113.20/tonne
• Bitcoin: steady at $US58,338

Prices current around 7:50am AEST.

Good morning and happy Friday! It's July 5, and I'm here to guide you through the first half of the day's business and finance news.

First up, there's very little news to bring you from overnight where Wall Street is concerned — the US markets were shut for Independence Day.

Instead, the focus has been on the UK, where its share market rallied as voters headed to the polls for its election.

The FTSE gained 0.9% at the close of trade to 8,241 points, on expectations the Labour Party would win a landslide majority in the UK.

As for where that leaves us locally, the ASX is set to slip when trading gets underway a little later this morning, with futures down 0.2% to 7,799 points as of 7:40am AEST.

If you haven't already, go grab a coffee while I hold the fort, and let's see what the day has in store.