Inflation Genie Still Stuck In The Bottle

By Glenn Dyer | More Articles by Glenn Dyer

Absolutely nothing for interest rates and the Reserve Bank in yesterday’s September quarter consumer price index except to confirm that inflation is not a concern and if anything is a bit softer than the central bank reckons.

According to the release from the Australian Bureau of Statistics, headline consumer prices rose by 0.5% in the September quarter, lifting the annual rate of inflation by 0.1 percentage point to 1.7%.

That’s still a long way from the Reserve Bank’s target range of 2% to 3% over time, and a long way from the most recent peak of 3.1% back in mid-2018.

The RBA meets next Tuesday to consider interest rates and its 4th and final quarterly Statement on Monetary Policy for 2019 which will contain new economic forecasts.

If anything the ABS data could see the RBA soften its inflation forecast for 2020 and 2021.

Investors took the report to mean a lower chance of a rate cut next Tuesday so the ASX fell.

The key underlying measures of inflation favoured by the RBA – the Trimmed Mean and the Weighted median – however, were more subdued. The trimmed and weighted medians of inflation rose by a 0.35% to be up 1.4% over the year, which is even further from the central bank’s target range.

In fact, underlying inflation has not been in the target band since the December quarter of 2015, something all those who called for a rise in mid-2018 when inflation reached an annual rate of 3.1%, clearly don’t remember these days.

The ABS said the single biggest increase in the quarter was for international travel, which rose by 6.1%, as flight and accommodation costs lifted for the peak European and American tourist seasons.

Tobacco prices rose by 3.4% due to a lift in the usual quarterly rise in federal excise. Tobacco prices have climbed by 15.1% over the past year.

Overall food and drink prices rose by 0.4% with meat and seafood prices up 1.7%, dairy products up by 2.2% and cereal products increased by 1.3%.

There was some relief with a seasonal drop in fruit and vegetable prices led by berries, citrus fruit, tomatoes and broccoli.

Over the past 12 months, lamb prices have climbed by 14.3% as farmers have been forced to reduce their flocks while beef and veal costs have increased by 7.1%.

Strong demand from China for pork, beef, veal and lamb meat in the wake of the continuing ravages of African swine fever has added to the pressure on local prices caused by the drought.

“Despite the price falls for fruit and vegetables this quarter, the drought is impacting on the prices for a range of food products,” ABS chief economist Bruce Hockman said in yesterday’s statement from the Bureau.

Overall housing costs increased by 0.7%, the lowest September rise since 1998 with weak price rises for utilities and rents.

There were falls with communication prices down by 1.1% in the quarter and down by 4.1% over the past 12 months while motorists got some relief with petrol prices down 2% in the quarter after rises earlier in the year.

But because of falls in late 2018 and in the latest quarter petrol prices are down nearly 4%, although you would not know that with prices in Sydney at or near record highs of more than $1.70 a litre.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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