So will those alarmist economics writers and others get the message that interest rates will not be rising anytime soon after the June quarter Consumer Price Index delivered another less than starling figure – with most of the inflationary pressures again due to actions by the Federal and State Governments?
The consumer price index rose an unchanged 0.4% from the March quarter for an annual rise of 2.1% in the 12 months to June, the seasonally adjusted figures in the June quarter CPI data from the Australian Bureau of Statistics on Wednesday showed.
That compares to a rise of 0.5% forecast by the market and a year on year rate of 2.2%. The CPI rose an annual 1.9% in the three months to March. It was up 1.9% in the 12 months toJune 2017, so the change over the year has been tiny, even though oil and petrol prices are up sharply, along with power prices, tobacco and alcohol costs.
The ABS said that higher petrol prices, higher tobacco, health and alcohol costs and a small rise in overseas travel were the main drivers in the latest rise, offset by weaker telecoms costs, lower fruit prices, soft drinks, food prices and domestic travel.
But the real story isn’t in the headline figures, its in the core measures of inflation – such as those favoured by the Reserve Bank (trimmed mean weighted median), annual inflation dipped under 1.9% in the June quarter from 2.0% the previous quarter, as the AMP’s Shane Oliver pointed out in a note on Wednesday afternoon:
"While the mean and median underlying inflation measures fell from 2% to 1.9% yoy (or 1.865% to be precise), other measures of underlying inflation are even weaker. Inflation in the private sector part of the economy excluding volatile items is running at just 1.1% year as year (as measured by the “market goods and services ex volatile items” index).
"This is in contrast to inflation in the government influenced parts of the economy where inflation is much higher with utilities prices up 8% over the year (even though they fell in the quarter), health costs +3.4%, education 2.7% higher and alcohol and tobacco costs up by 7.8%. The CPI excluding volatile items is also weak at just 1.8% year on year,“ Dr Oliver wrote.
A year ago the underlying core rate was just 1.8%, so again stripping out big rises in some categories, the rise has been almost nothing.
And the implication for interest rates from the latest figures? Unsurprisingly, Dr Oliver is not a believer in ‘rate rise now’ calls from the AFR and its tame galahs.
“The June quarter inflation data confirms yet again that, while we may have seen the bottom in inflation for this cycle in 2016, price growth is only running around the bottom end of the RBA’s 2-3% target band and there are no signs of any near-term significant price pressures in Australia, particularly with subdued wages growth and competition and technological innovation remaining intense.
“We remain of the view that the RBA won’t raise interest rates until 2020 at the earliest and given the weakness in inflation, wages and the Sydney and Melbourne housing markets along with the uncertain outlook for consumer spending the next move being a rate cut cannot be ruled out.”
He could have been writing the RBA’s latest board minutes.
Over the twelve months to the June quarter 2018, the tradables component of the CPI (that’s products exposed to international competition, such as cars, petrol and oil) rose 0.3% and the non-tradables component (electricity prices, excise, housing costs gas prices etc) rose 3.0%. Much of those rises were sanctioned by state of Federal governments (such as the health fund rises)
In the quarter the seasonally adjusted terms, the tradables component of the All groups CPI rose 0.4% and the non-tradables component rose 0.7%. c
