The June quarter inflation figures are always looked at with interest to see how they will affect chances of an interest rate cut at the coming RBA meeting. The latest figures will do little to nudge the RBA one way or the other but they reveal a large difference in price rises across the nation and also the final impact of the end of the carbon price on electricity.
The figures came in pretty much on expectations. The consumer price index grew 0.7% in the quarter, and the RBA’s “core inflation” figures of the trimmed mean and weighted median grew 0.6% and 0.5% respectively.
The CPI can jump around a fair bit each quarter, so the RBA generally ignores it and focuses on the core inflation when looking at whether or not cutting or raising interest rates is on the cards:
But nothing in these figures would really have the RBA caring too much. In the latest minutes from the RBA board, released on Tuesday, the board noted that “inflationary pressures were well contained and likely to remain so in the period ahead”.
And so they are.
The annual growth in CPI is pathetically low at 1.5%. For some context, from March 1964 to September 1991 the was never a 12-month period where inflation growth was that low, and in the past 20 years the average growth is 2.7%.
But even ignoring that, the core inflation remains at 2.2% for the trimmed mean and 2.4% for the weighted median. Both are comfortably at the bottom of the RBA’s target range of 2% to 3%, even though both measures essentially buff out the big reasons for the current weak inflation growth.
And interestingly, the main reason for inflation growth in the past quarter was the main reason inflation has fallen in the past year – petrol.
At the end of last year and the beginning of this year, petrol prices fell back to 2009 levels. The drop in world oil prices saw automotive fuel fall 6.8% in the December quarter last year, followed by 12.3% in the March quarter. But as noted at the time petrol prices had already started going up at the end of the March quarter and it was fully expected that the June quarter would see a rise – and so it was up by 12.2% across the country:
But automotive fuel prices remain 10.6% below where they were 12 months ago.
It makes for some very odd inflation figures.
Of the 10 items whose prices grew the most in the June quarter, only two – the perennial tobacco, and medical and hospital services (which grew due to the annual indexation of private health insurance) are in the top 10 price rises for the past 12 months and for the past three years:
This quarter also sees the end of Joe Hockey being able to point to the removal of the carbon tax as having helped keep inflation down.
After this the annual inflation figures won’t include the drop in electricity prices that came into effect in the September 2014 quarter. Indeed, given the September quarter traditionally sees the biggest jump in electricity prices, there is every chance that in the next inflation figures prices will be back where they were before the removal of the carbon price.
The inflation figures also demonstrate the continued weakness in the economy. The prices of “non-tradeable” goods and services grew a mere 2.6% on the past 12 months. These commodities are those where the price is determined in Australia and not on the world market (as is the case, for example with fuel). The weak growth (even when excluding the continuing impact of electricity prices) points to continued weak demand in the economy:
But the inflation figures also point to pretty wild differences across the nation. Sydney saw inflation rise 2.2% in the past year compared with just 1.1% in Melbourne.
The rise in house prices (by owner occupiers) was much larger in Sydney – 8.8% – than any other city. Food prices as well grew faster in Sydney than other cities, although the cost of dining out grew fastest in Melbourne:
But while Sydney and Melbourne saw the price of utilities fall, Brisbane and Adelaide residents experienced an increase over the past year. Brisbane was the only city to see electricity prices rise in the past 12 months, and the price of gas in Adelaide rose 8.7%, more than negating the mere 0.17% fall in electricity prices.
Inflation is a constant in Australian life. Excluding price falls due to tax changes, inflation hasn’t fallen in a 12-month period in Australia since 1962. But at the moment we are experiencing historically low price rises. Despite employment holding up better than expected, the low inflation growth reveals the economy remains weak and sorely lacking people demanding to buy goods and services.
