Month: May 2017

Westpac Tightens Mortgage Lending Policy

Westpac has joined the bandwagon as from 5 June, the bank will reduce the maximum LVR on new and existing interest only lending to 80%. This change will apply across the board to owner occupier and residential investment loans, equity access loans and special borrower packages such as Medico, Industry Specialisation Policy, Sports and Entertainment, and Accounting, Law and Executive Sector loans.

Westpac will also no longer accept new standalone refinance applications for owner occupier interest only home loans from an external provider, effective from 5 June. Internal refinancing for owner occupiers will still be permitted for interest only loans, subject to maximum LVR requirements and customer suitability.

Principal and interest as well as residential investment interest only refinancing will not be affected.

Westpac will continue to waive the repayment switch fee for those wishing to move from interest only to principal and interest repayments. Premier Advantage Package customers can switch at any time with no additional costs. For fixed loans however, certain break costs may apply.

Westpac said in a note to brokers:

“We are committed to meeting our regulatory requirements, and ensuring we are lending responsibly and in the best interests of our customers. We regularly review our polices and processes based on a number of factors such as the impact of regulatory requirements and the economic environment,”

“These changes will help us continue to meet our regulatory requirements and apply responsible lending practices in assessing a customer’s ability to service existing and proposed debts.”

Treasury delays first bank levy payment

From Australian Broker.

Treasurer Scott Morrison has delayed the first payment of the controversial bank levy and argued that any added costs will be no excuse for the big lenders to alter mortgage or deposit rates.

In his second reading speech on the Major Bank Levy Bill in Parliament House, Morrison said the first levy calculation and instalment will be postponed by three months with the first payment now occurring on 21 March 2018.

“The government is working with the banks to ensure a smooth transition to the new regime. To assist major banks to begin to comply with the levy, the first levy calculation and installment will be delayed by three months – at no cost to revenue – to provide additional time for banks to make necessary systems changes,” he said.

This means that the banks will have to pay for both the September and December quarters for 2017 on the same day. The levy for the 2018 March quarter will be payable on 21 June while that for the June quarter will be payable on 21 September.

The levy does not give the banks an excuse to increase costs for customers, Morrison added.

“That is why the government has directed the ACCC to undertake an inquiry into residential mortgage pricing. The ACCC will be able to use its information-gathering powers to obtain and scrutinise documents from any bank affected by the levy and to report publicly on its findings.”

The Treasurer said he expected the banks to balance the needs of borrowers, savers, shareholders and the wider community following the introduction of the levy.

“The ACCC inquiry will illuminate how the banks respond to the introduction of the levy and give all Australians the information they need to get a better deal elsewhere from any of the more than 100 other banks, credit unions and building societies, as well as other non-bank competitors.”

However, CEO of the Australian Bankers’ Association (ABA) Anna Bligh has said that these costs will already be passed onto the public regardless.

“The government’s own figures and the government’s own documents can see that the impact of this tax is likely to fall on savers, borrowers, lenders and shareholders. It is a concession at last and an acknowledgement from the government that this is a tax on all Australians,” she told the media.

“We don’t have to wait for this tax to be introduced for it to have an impact on Australians right now. Since budget day, $39bn has been wiped off the market value of our five largest banks. And every Australian who has a superannuation account will see a loss of value.”

Commenting on the changes made by the Treasurer today, Bligh said the government “has been forced to make some concessions” with the banks as both parties attempt to understand the underlying complexity of the levy.

“Banks have been telling the government for three weeks that this is complex and they need to get it right,” she said.

In his speech to Parliament, Morrison also effectively said the levy would not be raised, keeping the level at the previously proposed 0.06% per annum for any eligible licensed entity liabilities at the big five banks.

Financials Are Under Pressure

The latest data on the S&P/ASX 200 Financials shows the 25 plus stocks in the index have collectively moved lower – and at a faster pace than the market. Though a little bounce today.

A range of factors are in play, including the bank tax, rising concerns about the banks exposure to property, and the risks of higher defaults in a low growth higher risk environment.

The bank credit default swap rate is higher, indicating higher funding costs and risks, and the yield curve is not helping.

Underlying this are the recent result rounds which showed that whilst volume may be up, net interest rates are not, and the pressure to slow loan growth, and lift margins will impact the competitive landscape and future volume growth.

Sell in May, and go away, possibly is good advice!

Australians Choose Digital Payments

Australians are embracing digital payments according to the latest  Milestones Report released by the payments industry self-regulatory body Australian Payments Network (previously Australian Payments Clearing Association). As a result, cash and cheques are in decline. Australia’s digital economy underpins what can increasingly be characterised as a less-cash society.

Cheque use plunged 20% to 111.6 million – the largest drop ever-recorded. The value of cheques dropped by 6% over the same period, after remaining flat in 2015 and dropping by less than 1% in 2014. Over the last five years, cheque use has dropped 56%.

The number of ATM withdrawals dropped 7.5% to 648.5 million in 2016 following a 5.5% drop in 2015 and a 4.7% drop in 2014. Since 2011, ATM withdrawals have dropped by 22%.

CEO of the Australian Payments Network, Dr Leila Fourie said “Looking at the payment choices that Australians make, it’s clear that the vast majority of us are moving away from cash and cheques faster than ever before. This is happening because of widespread use of new technology combined with a strong preference for faster and more convenient payment options.”

Consumers’ preference for digital payments is reflected in the strong year-on-year growth in card and direct entry transactions:

  • Australians used their cards 12.3% more in 2016, making 7.4 billion transactions.
  • Direct entry transactions (direct debit and direct credit) increased by 8.6% to 3.5 billion.

Over the last five years, card transactions grew by 72% and direct entry by 36%.

Increased smartphone penetration, which reached 84% in 2016, up from 76% in 2014, is an important contributing factor.

Australia’s online retail spend was estimated at $21.6 billion in 2016 and encouragingly from a digital inclusion perspective, this spend is not restricted to digital natives. Older Australians are using online shopping platforms more, with domestic online spending growing by 8.7% for those in the 55-64 age group, and 7.5% for 65+.

The Report also tracks progress on initiatives supporting Australia’s transition to the digital economy including the industry’s New Payments Platform and Australian Payments Plan.

AMP Bank Lifts Mortgage Rates

From The Adviser.

AMP Bank has, as of this week, increased variable interest rates for owner-occupied interest-only loans by 28 basis points. The increase applies to Basic, Professional Pack, Classic, Affinity and Select variable rate loans and lines of credit. The increase does not apply to construction and land loans.

For example, the Basic package variable rate for new owner-occupier mortgages (interest only) now starts from 4.56 per cent (4.28 per cent comparison).

As well as variable rates, the bank has also hiked fixed rates for owner-occupied and investment interest-only loans by 20 basis points. The increase applies to fixed rate loans between 1 to 5 years as well as for 1-year fixed interest in advance loans.

Fixed rates for owner-occupied principal and interest loans have decreased by 10 basis points.

Existing customers will not be impacted by the changes.

The maximum loan-to-value ratio for interest-only loans will drop from 90 per cent to 80 per cent, effective for loan applications received from Wednesday, 31 May.

This change applies to all owner-occupied loans and loans that include owner-occupied and investment property securities. Master limit applications will also be limited to 80 per cent LVR.

The maximum LVR for purchases of investment property loans remains unchanged at 70 per cent.

AMP aims to be “provider of choice” for brokers

The rate changes were announced on the same day as AMP held its investor strategy day in Sydney, in which the bank revealed that it aims to become the “provider of choice to advisers and brokers” and believes it has “significant potential for future growth” via the broker market.

The group executive for AMP Bank, Sally Bruce, told The Adviser that mortgage brokers had been identified as one of the “key priorities and distribution channels” for the bank, and that it was therefore “looking to increase both the breadth and depth of [its] adviser and broker distribution network”.

Ms Bruce said: “Mortgage brokers currently generate more than 50 per cent of all home loan applications in Australia and, with the credit market growing, and AMP’s market share at just 1 per cent, we believe this market has significant growth opportunity.”

She added that the bank had “boosted the team that supports intermediaries by 20 per cent, helping [the bank] with ongoing improvements to efficiency and speed for turning around applications”.

According to Ms Bruce, this “service-focus, plus a compelling and competitive range of mortgage products, will play key roles in driving growth”.

Speaking at the investor strategy day last week, Ms Bruce noted that the first quarter of the financial year 2017 had seen a 5 per cent boost in both mortgages and deposits.

She commented that the bank was “confident” that the growth would continue for several reasons. Ms Bruce explained: “The first thing is because we have a very strong, established distribution capability… [W]e have the largest advice network in the country and we also have established broker relationships. When you look at that as a channel, it targets more than 50 per cent of all mortgage activity in the market.”

Ms Bruce concluded: “In the broker fraternity and the market generally, we have 1 per cent market share, so we continue to reach further into the network and originate through those people. We’re having great success with that in both of those channels; we’re continuing to get broader reach into more advisers, more brokers, and originating more through them.

“So, we’re just at the beginning of the journey which is what gives us comfort.”

Dwelling Approvals Rose A Little In April

The number of dwellings approved rose 0.1 per cent in April 2017, in trend terms, and has risen for three months, according to data released by the Australian Bureau of Statistics (ABS) today.

Dwelling approvals increased in April in the Australian Capital Territory (3.6 per cent), Queensland (3.4 per cent), New South Wales (1.7 per cent), South Australia (1.6 per cent) and Tasmania (0.3 per cent), but decreased in Victoria (3.2 per cent), Western Australia (2.3 per cent) and the Northern Territory (2.2 per cent) in trend terms.

In trend terms, approvals for private sector houses fell 0.2 per cent in April. Private sector house approvals rose in South Australia (2.0 per cent), Victoria (0.3 per cent) and New South Wales (0.2 per cent), but fell in Queensland (2.0 per cent). Private house approvals were flat in Western Australia.

The movements across states show an upswing in SA, slight rises in VIC, NSW and WA, and a sharp fall in QLD.

In seasonally adjusted terms, dwelling approvals increased by 4.4 per cent in April, driven by a rise in total dwellings excluding houses (8.9 per cent) and total house approvals (0.8 per cent).

The value of total building approved rose 2.5 per cent in April, in trend terms, and has risen for three months. The value of residential building rose 0.2 per cent while non-residential building rose 6.9 per cent.

“Dwelling approvals have been relatively stable in trend terms over the past three months, after falling from record highs in mid-2016,” said Daniel Rossi, Assistant Director of Construction Statistics at the ABS. “The April 2017 data showed that the number of dwellings approved is now 14 per cent below the peak in May 2016”.

APRA Reinforces The Mortgage Fog

APRA released their quarterly property exposure statistics today to end March 2017.

We see a fall in interest only loans, a fall in over 90% LVR loans and a fall in out of serviceability approvals.  Third Party volumes from the majors fell, though offset by momentum from foreign banks.

Except they put a health warning on the data which says in essence, the numbers they are using to managed the banks interest only exposures are different from those reported.  They caution that loans approved may not necessarily be funded, and they are measuring funded loans, which are not disclosed. In the public data on approved loans, we see a small fall, but offset by a rise in interest only loans offered by foreign banks.

The below-the-waterline conversations continue away from public gaze, despite the material implications of changes being made. Once again disclosure in Australia is shown as faulty and myopic. They also stopped reported credit unions and regional banks separately, last year as the number of entities fell, which is another issue.

This is what they said:

APRA recommends that users of the publication exercise caution analysing and interpreting the statistics to monitor sound residential mortgage practices. APRA initiated additional supervisory measures to reinforce sound residential mortgage lending practices in an environment of heightened risks on 31 March 2017.

These measures included an expectation that ADIs limit the flow of new interest-only lending to 30 per cent of new residential mortgage lending.

The data used by APRA to monitor ADIs’ new interest-only lending is not the same as the source data for the statistics in this publication. First, APRA monitors ADIs’ new interest-only lending using data on loans funded; statistics is this publication show loans approved. Loans approved is a broader definition than loans funded; loans approved may not necessarily be funded. Second, APRA monitors new interest-only loans funded by all ADIs; interest-only mortgage statistics in this publication are based on data reported by 31 ADIs with over $1bn in residential term loans.

APRA currently collects data on ADIs’ new interest-only loans funded in an ad-hoc data collection.  APRA has introduced a new reporting form, Reporting Form ARF 223.0 Residential Mortgage Lending (ARF 223.0) to better enable APRA’s supervisory monitoring and oversight of residential mortgage lending, and reduce the reliance on ad hoc information requests.

APRA will consider publishing statistics sourced from ARF 223.0 in the future.

Having got that out of the way, lets see what the public data does say.

Total ADIs’ residential term loans increased by $107.8 billion from march 2016, to $1.51 trillion as at 31 March 2017. This is an increase of 7.7 per cent on 31 March 201.

Of these, owner-occupied loans were $985.8 billion (65.1 per cent), an increase of $78.9 billion (8.7 per cent) from 31 March 2016; and investor loans were $528.7 billion (34.9 per cent), an increase of $28.8 billion (5.8 per cent) from 31 March 2016. Note: ‘Other ADIs’ are excluded from all figures.

ADIs with greater than $1 billion of residential term loans held 98.7 per cent of all such loans as at 31 March 2017. These ADIs reported 5.8 million loans totalling $1.49 trillion. Of these the average loan size was approximately $259,000, compared to $250,000 as at 31 March 2016 and   $583.3 billion (39.0 per cent) were interest-only loans.

ADIs with greater than $1 billion of residential term loans approved $383.7 billion of new loans in the year ending 31 March 2017. This is an increase of $13.8 billion (3.7 per cent) on the year ending 31 March 2016.

Of these new loan approvals, owner-occupied loan approvals were $249.7 billion (65.1 per cent), an increase of $7.6 billion (3.1 per cent) from the year ending 31 March 2016 and investment loan approvals were $134.0 billion (34.9 per cent), an increase of $6.2 billion (4.8 per cent) from the year ending 31 March 2016.

$54.0 billion (14.1 per cent) had a loan-to-valuation ratio (LVR) greater than 80 per cent and less than or equal to 90 per cent, an increase of $2.7 billion (5.4 per cent) from the year ending 31 March 2016 (chart 8),      $30.8 billion (8.0 per cent) had a LVR greater than 90 per cent, a decrease of $4.2 billion (12.0 per cent) from the year ending 31 March 2016 and      $141.6 billion (36.9 per cent) were interest-only loans, a decrease of $5.3 billion (3.6 per cent) from the year ending 31 March 2016.

The number of over 80% under 90% LVR loans rose.

Offset by a fall in over 90% loans.

We see a fall in the over 90% LVR across the banks. So there is some lowering of risk from an LVR perspective, but affordability standards are still too lax in places (in our view).

Third party loans from the majors fell from over 47% to 46%, reflecting a change in emphasis we have already discussed, as some lenders push business via their branch channels.

Loans outside servicability fell as a proportion of loans, other than from foreign banks, where it is on the rise, though from a lower base.

Finally, investment loans are highest via the major banks and we see a rise in investment lending from the foreign banks, as some local lenders dial back their loan availability to meet regulatory constraints.

 

The government will likely get more from the bank levy

From The Conversation.

In this year’s budget papers, Treasury estimated that the bank levy will collect about A$1.5 billion in each of the next four years for the government. But this is actually a conservative estimate.

Labor has argued there will be a A$2 billion dollar hole in the bank tax revenue. This is based on the disclosure to the ASX of four of the five affected banks, on what they will likely pay government.

But the banks’ numbers assume there won’t be change to any decisions in response to the bank levy. Research shows this is highly unlikely, as bank customers have worn the cost for bank taxes like this, imposed after the global financial crisis in the UK.

In fact, if the economy keeps growing as many have predicted, and banks grow too, then the amount of revenue the government collects from the levy may even be bigger than Treasury estimates.

What we know about the bank levy

When it comes to what revenue the government can get from the bank levy, both the taxable sum, and the tax rate applied, determine what gets collected.

The budget papers specify the taxable sum as including “items such as corporate bonds, commercial paper, certificates of deposit, and Tier 2 capital instruments” but not “Tier 1 capital and deposits of individuals, businesses and other entities protected by the Financial Claims Scheme”. The bank levy will be an annualised rate of 0.06%, applicable for all licensed entity liabilities of at least A$100 billion from July 1, 2017. Small banks and foreign banks are exempt.

Although it is possible the bank levy would not be a deductible expense in calculating corporate income, precedent and statements by government indicate the levy will be deductible. Special taxes on the mining industry (including royalties and the petroleum resource rent tax), state payroll, land taxes, stamp duties and indirect taxes such as petroleum excise are all deductions in the calculation of taxable corporate income.

Errors in the assumptions about banks

Labor and banks also assume that the bank levy is a deduction in assessing corporate income. The preliminary data made public by four of the five affected banks indicates the gross revenue gain of the bank levy, less the reduction in corporate tax, will be less than the budget numbers.

That is, the net revenue reflects a 0.042% levy rather than the 0.06% rate. This also assumes shareholders will bear all of the net additional taxation.

But it also assumes the banks will not change any decisions. This is both a simplistic and an unlikely scenario.

In essence, the bank levy is a selective indirect tax on one of the inputs used by the large banks to provide financial services to their customers.

A more likely scenario is that the banks will seek to, and succeed in, passing forward most of the new indirect tax to their customers as a combination of higher interest rates and fees. From past experience, banks pass forward higher Reserve Bank of Australia (RBA) interest rates, just as they pass forward lower rates.

Given that the affected five banks account for over 80% of the market, together with the reluctance of most Australian business and household customers to switch banks, there is a high probability that most of the levy will be passed forward as higher bank interest rates and fees.

Should the banks pass forward most of the levy to their customers, the increase in bank revenue will match the increase of bank costs caused by the levy. That is, taxable corporate income will remain about the same. Then, the overall government revenue gain is given by the gross 0.06% bank levy.

The bank levy could even collect more

If the output and incomes of the five banks to pay the levy expand over the next four years, then we would expect additional revenue to be collected by government to increase over time. The budget papers, the RBA, international agencies and private sector economists all forecast economic growth. It’s unlikely that the big five banks would not also experience economic growth.

So the budget paper forecast that the bank levy revenue collection of about A$1.5 billion a year for each of the next four years, has to be on the conservative side.

The revenue estimates for the levy are forecasts or projections compiled in a world of uncertainty. So a lot is still up for debate, including not only the design of the levy but the future path of the economy in general and for the large banks in particular.

Details and assumptions underlying government estimates of the revenue from the bank levy are unclear. It would be an unusual precedent not to allow the levy to be a deduction in calculating corporate income tax, and so reducing the net revenue gain. But the implicit assumption of the bank released numbers of no decision changes by the banks is unrealistic.

If banks, as businesses in general, pass forward to customers much of an input tax, a large part of the first-round fall in corporate income, is offset by higher revenue. Government forward estimates of additional government tax revenue collected by the levy likely are on the conservative side.

Author: John Freebairn, Professor, Department of Economics, University of Melbourne

Savings rates drop to record lows

From The NewDaily.

Australians are being encouraged to repay debt instead of putting money in the bank, as new data confirms that savings accounts are paying record low rates of interest.

The Reserve Bank reported in recent days that online savings accounts and bonus savers were paying less than a third of what they were a decade ago, with term deposits not much better.

Average interest rates on online savers peaked at 7.3 per cent in 2008 before plummeting. They were sitting at 1.65 per cent in April, according to the latest RBA figures.

Back in the golden years, a saver with $10,000 could have earned more than $600 a year in an online account. Now, they’d be very lucky to get $200.

(Data on online savers only goes back to 2004 because that’s when they started being offered in Australia. NAB was the last of the big four to offer them in September 2005.)

Bonus savings accounts, which offer conditional bonus interest on top of base rates, went as high as 5.5 per cent in 2008. They’ve dropped since to 1.95 per cent.

savings rates rba

Gregory Mowle, a financial literacy expert, said with rates so low, Australians should consider paying off debt instead.

“As an alternative to a savings account, if someone has debt, any form of debt, get out of it. It’s the best form of savings you can have,” he told The New Daily.

“For people with debt, my message is, rather than parking your $500 somewhere and barely earning 1 per cent, well, if you’re being charged 15 per cent on a $5000 credit card debt, repay the debt instead.”

He also encouraged Australians with bonus saver rates to keep a close eye on the fine print.

“If a certain minimum balance isn’t kept in the account or if you withdraw money out or don’t put a certain amount back in, you won’t get that token interest rate payment.”

Even at low rates, saving is still a good idea

Mr Mowle acknowledged there is a good economic argument for rock-bottom rates.

“Rates are at record lows because the government and the lenders want you to borrow money. If everybody saved, the economy would collapse.”

But he said saving is still a good idea, especially to protect against emergencies such as job loss.

Don’t even think about experimenting with the share market or other sophisticated investments until you have, at a “bare minimum”, enough savings to cover three months of living expenses, Mr Mowle said.

“Some people jump straight into shares because their personality says savings accounts are too boring. But I think someone should have at least three months’ worth of cash there before they start to diversify and look at things like equities.”

Savings accounts may be boring, but they’re also safe, he said.

“I’d caution to people not to be chasing alternatives to your basic savings products because promised higher rates always come with guaranteed higher risk.”

Cost of ‘modest’ retirement up 33%: ASFA

Rising costs of living are impacting retired households according to new research.  The figures reveal couples aged around 65 will need to spend $59,971 a year and singles $43,665.

Significant hikes in the cost of power, health care, food and rates over the past 10 years have driven increases in the amounts needed to achieve both modest and comfortable retirements, according to the latest data from the Association of Superannuation Funds of Australia (ASFA).

It is more than a decade since the first release of the modest and comfortable ASFA Retirement Standard (RS) budgets.

Every three months since June 2006, they have tracked the rise and fall of items that comprise average household budgets. Updates reflect inflation and provide detailed budgets of what singles and couples need to support their chosen lifestyle.

Between June 2006 and March 2017, the RS budget at the modest level for a single person increased by 33 per cent, while the single comfortable budget rose by 23 per cent.

The budget for a couple at the modest level increased by 36 per cent and at the comfortable level by around 26 per cent.

ASFA CEO Dr Martin Fahy said the figures compared to an overall 28.6 per cent increase in the Consumer Price Index (CPI).

“The categories of expenditure that really impacted the budgets are not altogether surprising,” he said.

“Over the period, electricity costs increased by 124 per cent, health costs by 60 per cent, property rates and charges by 83 per cent and food costs by 24 per cent.

“Price changes for less essential items tended to be lower and in some cases prices fell.

“The price of clothing fell by a total of three per cent over the period with an eight per cent fall in the cost of communications (including telephone and mobile phone charges).

“The cost of international holidays rose by a relatively modest 16 per cent over the period.”

Over the more than 10 year period, the maximum Age Pension increased in real terms, by 70 per cent for a single person and 54 per cent for a couple, from a starting base far too close to the poverty level.

The Age Pension is adjusted by what is the greater of the increase in average wages or the CPI. During the period, average earnings rose by 43 per cent.

There also were some discretionary increases made to the rate of the Age Pension, particularly to the single rate. However, despite these various increases, the Age Pension alone still does not permit a retiree to achieve even a modest standard of living in retirement at the levels set by the ASFA RS.

The increases in the Age Pension over and above the increase in the CPI and in wages have helped contain the savings required at the time of retirement, in order to support either a modest or comfortable lifestyle.

On the other hand, the tightening of the means test has led to an increase in the amount of retirement savings needed to support a comfortable standard of living in retirement.

Other price increases of interest included: tobacco (not in RS budgets but consumed by many retirees) up by 178 per cent; wine up by only six per cent, but beer up 45 per cent; rents up 51 per cent; postal services up 45 per cent; vet fees (not in RS budgets) up 49 per cent; and, insurance costs up 72 per cent.

Dr Fahy said both budgets assume retirees own their own home outright and are relatively healthy.

“Of increasing concern is the reality of many more retirees at the mercy of the private rental market, so when you consider the increase in renting costs, it highlights the need for increasing numbers of retirees to have much greater super balances to support a reasonable retirement,” he said.

In the latest RS updates for the March quarter, there was a slight increase in the cost of living for retirees, with increases in the prices of petrol, medical and hospital services and electricity.

The ASFA RS March quarter figures indicate couples aged around 65 living a comfortable retirement need to spend $59,971 per year and singles $43,665, both up 0.3 per cent on the previous quarter.

Total budgets for older retirees increased by around 0.3 per cent at the comfortable level and 0.6 per cent at the modest level.

Over the year to the March quarter, there was a 1.8 per cent increase in the budgets, slightly lower than the 2.1 per cent increase in the All Groups CPI.

Dr Fahy said the cost of retirement over the most recent quarter only increased by a relatively small amount but many individuals would still find it difficult to achieve a comfortable standard of living in retirement.

“Over the longer term, the cumulative increase in retirement costs has been considerable,” he said.

The most significant price increases in the March quarter contributing to the increases in annual budgets were for automotive fuel (5.7 per cent), medical and hospital services (1.6 per cent) and electricity (2.5 per cent). Fluctuations in world oil prices continue to influence domestic fuel prices.

The most significant offsetting price falls were for international holiday travel and accommodation (-3.8 per cent) and fruit (-6.7 per cent).

Overall, food prices fell 0.2 per cent in the March quarter. The main contributor to the fall was fruit (-6.7 per cent), due to plentiful supplies of both year-round and summer fruit. Over the last 12 months, food prices rose by 1.8 per cent.

International holiday travel and accommodation prices fell 3.8 per cent due to the winter off-peak seasons in Europe and America.

Clothing and footwear prices fell 1.4 per cent in the quarter, reflecting discounting during the post-Christmas sales.

The price rises for both medical and hospital services and pharmaceutical products reflect the annual cycles for the Medicare Benefits Scheme and Pharmaceutical Benefits Scheme (PBS).

Insurance prices increased 0.8 per cent in the quarter. Over the last 12 months, insurance prices have increased by 6.8 per cent.

Expenditure on education is not included in the retirement budgets but some retirees paying school fees for their grandchildren would be affected by a 4.1 per cent increase in secondary education school fees following the commencement of the new school year.