What goes up...

Just when it looked like Australians were in line for an interest rate rise before Christmas and possibly another after that circumstances could be stacking up which could see rates being left on hold. And a very big part of that 'stack' is the recent slide of the petrol price.

You heard it here first!
Mind you might have read it here first with a story I did with AMP's Shane Oliver who actually tipped the next move on rates would be down! He is still in a minority on this one but it is getting bigger.

The flow on from petrol
And while lower petrol prices are not news to any motorists reading this column, what it means for our investments and major money plays is another story.

In case you missed it, my economic buddies at CommSec tell me that crude oil prices have fallen 19% since the peak in August and even more significantly, Singaporean unleaded petrol has slumped 26%. At the same time, our petrol prices have only come down 11.9%.

You can see why shares linked to sellers of petrol have had a tendency to do pretty well of late. They do hold all of the aces.

The Qantas effect
Anyone wondering why Qantas shares have improved, well the 18% drop in jet fuel could be a part of the story. When there are major changes in key prices for inputs in the production process it can directly affect the bottom line of publicly listed companies and, in turn, their share prices.

On the inflation front
But to bigger issues and what will this fall in petrol prices have on inflation?

Ultimately it has to flow through to the Consumer Price Index and the rise in petrol prices was critical to the Reserve Bank going on red alert about future inflation rates. So the lower prices should bring down inflation and take pressure off the Big Bank to raise rates in the not too distant future.
In fact, December's reading of inflation could be a beauty, on the low side, provided the Middle East and hurricane season in the USA doesn't ruin the increasingly rosier picture.

Hold your fire, please
Also encouraging the Big Bank to hold fire on rates has to be both the pace of economic growth here and in the USA. The Yanks have really had the wind knocked out of their sail and here the slow pace of growth in New South Wales, in particular, hardly leaves us as candidates for another quick interest rate rise.

This can only be guesswork but there is a case for believing that the fear of a global slowdown, because of the USA, will be offset by the Yanks starting to cut interest rates.

What could happen
At the same time, our Reserve Bank could sit on its hands until lower inflation is proved by year's end and leave interest rates unchanged or it could cut by 0.25%.

That would help confidence here and then January could give the stock market a good start as the USA reacts to lower rates and its economy looks a bit healthier. Our stock market should play follow the leader.

There doesn't look to be a good argument that resource prices will go back to older and most recent high levels - gold and oil could be the exceptions in troubled times - but we might find some good resource stocks have been oversold.

Two golden rules
Certainly, this is the time for two important maxims for investors. When resource shares look to be struggling, value fund managers should come into their own as they are skilled at finding well-priced quality companies. Secondly, now is the time to buy more of the good stocks you are holding for the long-term that have fallen in price, as by doing this you bring down the average price you've paid for your stocks.

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