The price of oil plummeted to its lowest close in almost eight months — a barrel of light sweet crude fell $1.44 to settle at $58.52 on the New York Mercantile Exchange. Investors sent the price downwards on speculation that OPEC will not follow through on rumours that they will implement a lower production ceiling in order to halt the price slide.
The falling price of oil has helped support Wall Street, as the Dow Jones industrial index reached yet another record high overnight. Lower oil prices have also boosted expectations of consumer spending. Recent measures of consumer sentiment have shown that consumers are regaining confidence after rising global interest rates and expensive oil forced them down for most of 2006.
This week’s ABC News/Washington Post Consumer Index jumped to -8 on its scale of -100 to 100 from -13 last week. It was only the 17th time the index has gained five or more points in one week in more than 1,000 weekly polls — quite a result. This week’s result is only one point away from the 2006 high point.
Last Friday’s Australian Roy Morgan Consumer Confidence Rating showed an increase in confidence — up 7.2 points to 115.8. The main driver behind the jump was an increase in short-term economic expectations, clearly a result of lower petrol prices.
As is normal, the Westpac-Melbourne Institute index of consumer sentiment showed a similar rise of 3.9% to 105.2 in October from 101.2 in September, although it is five days behind the news.
The New Zealand Roy Morgan Consumer Confidence Rating has also recovered in recent months despite inflated interest rates. It is unclear whether Reserve Bank of New Zealand Governor Alan Bollard will hike the cash rate to 7.5% at the October meeting, as inflation has refused to abate. New Zealand currency traders clearly think another hike is coming, having pushed the NZ dollar 3.4% higher in the past month.
Finally, Henry welcomes the recent vigorous debate on tax reform, with John Freebairn and Dr Nicholas Gruen adding valuable contributions. Be sure to read the suggested reforms of Henry’s editor here — Tax reform — the economic case.
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