* Inventory rebuilding adds around 1 ppt to Q2 GDP
* Greatly lessens risk of an economic contraction
* Home prices sprint almost 11 pct higher in year to Aug
* TDMI inflation gauge moderates to 2.5 pct pace
By Wayne Cole
SYDNEY, Sept 1 (Reuters) - Australian firms restocked their shelves at the fastest pace in over a year last quarter in a much-needed fillip to economic growth, while sales and wages both picked up even as profits were squeezed.
Monday’s data from the Australian Bureau of Statistics implied the rebuilding of inventories added a full percentage point to growth in the second quarter, welcome news at it greatly lessens the risk of a contraction.
Gross domestic product (GDP) data is due on Wednesday and signs are it will show a slowdown from the first quarter’s brisk 1.1 percent gain.
Growth looks to have been sapped by consumer caution after a controversial government budget of spending cuts and higher charges, while a rebound in imports dragged on trade.
The median forecast from a Reuters poll of analysts was still for pedestrian growth of 0.4 percent in the second quarter, but at least that would be positive.
“There’s less chance of a negative number now,” said Kieran Davies, an economist at Barclays. “The contribution from inventories will balance the drag from imports.”
“More importantly, signs are the third quarter got off to a good start and that will make the Reserve Bank pretty happy.”
The Reserve Bank of Australia (RBA) holds its September policy meeting on Tuesday and is widely expected to again hold rates at a record low of 2.5 percent, and to signal further stability for policy.
Futures markets are pricing in steady rates out to the middle of next year <0#YIB:>, with a modest risk of a cut if policy were to change.
The chance of an easing reflects in large part a slowdown in mining investment and weakness in prices for key resource exports including iron ore and coal.
The impact on company earnings was clear in Monday’s figures, with miners reporting a 15 percent drop in gross operating profits in the second quarter.
Yet firms as a whole reported firmer sales and felt flush enough to pay their workers more, lifting annual wages growth to 2.9 percent, from 2.5 percent in the first quarter.
Other figures out on Monday showed that the prolonged period of low rates is having its clearest impact in the housing sector. Property consultant RP Data reported home prices in Australia’s major cities rose 1.1 percent in August, from July when they climbed 1.6 percent.
Prices were up 10.9 percent on August last year, accelerating from a 10.2 percent annual pace in July. For the three months to August, which marks winter for Australia, prices rose a brisk 4.2 percent in the biggest gain since 2007.
“Considering the ongoing high rate of auction clearance rates, a generally rapid rate of sale and the ongoing low interest rate environment, it’s likely that dwelling values rise even further over the next three months,” said RP Data research director Tim Lawless.
The inexorable appreciation has also boosted household wealth, giving consumers spending power in the face of subdued wages growth. The ABS estimates the total value of Australia’s homes climbed A$493 billion in the year to June to stand at a cool A$5.2 trillion.
Rising prices have been mostly welcomed by policymakers as necessary to encourage a much-needed revival in home building, though the RBA has warned speculators not to get carried away.
Fortunately for the bank, broader inflationary pressures looked to have eased in recent months after uncomfortably high readings in the second quarter.
The TD Securities-Melbourne Institute’s monthly measure of consumer prices was unchanged in August, following a 0.2 percent rise in July. As a result the annual pace of inflation slowed to 2.5 percent, down from a top of 3.0 percent in June.
That was the lowest rate since January and right in the middle of the RBA’s long term target band of 2-3 percent.
“The signal from our gauge is that inflation pressures have moderated in the quarter,” said Annette Beacher, TD’s head of Asia-Pacific research.
“The RBA continues to express uncertainty about Australia’s economic health once the mining boom ends, hence for the board meeting we expect more of the same.” (Editing by Eric Meijer)