Inflation Data Shows The Continuing Fragility Of The Australian Economy

Getty/Carsten Koall

Australia’s September quarter consumer price index is up 0.5%, giving an annual rate of 2.3%.

The Australian Bureau of Statistics said:

The Consumer Price Index (CPI) rose 0.5% in the September quarter 2014, following a rise of 0.5% in the June quarter 2014.

The most significant price rises this quarter were for fruit (+14.7%), new dwelling purchase by owner-occupiers (+1.1%), property rates and charges (+6.3%) and other services in respect of motor vehicles (+5.8%). These rises were partially offset by falls in electricity (-5.1%) and automotive fuel (-2.5%).

The CPI rose 2.3% through the year to the September quarter 2014, following a rise of 3.0% through the year to the June quarter 2014.

The Consumer Price Index (CPI) measures price change for consumption goods and services acquired by Australian resident households. The Australian Government repealed carbon pricing with effect from 1 July 2014. It is not possible to quantify the impact of removing the carbon price on the price change measured by the CPI.

Overall the data is consistent with both the RBA’s inflation target but also of an economy that may be slowing more than many appreciate.

CPI is broadly broken up into tradable ( goods and services in this component are largely determined on the world market) and non-tradable ( goods and services in this component are largely determined by domestic price pressures.) These components make up roughly 40% and 60% of the total CPI basket respectively.

The data shows that non-tradables fell 0.1% last quarter. While the ABS says this was “mainly due to electricity” with offsetts from new dwelling purchases by owner occupiers, property rates and charges and rents the steep decline to 2.4% for non-tradeable inflation from 3.1% speaks of an economy which lacks pricing power outside of housing.

That suggests an economy where aggregate demand is not strong as the disconnect between consumer confidence and retail sales and the recent fall in business confidence and conditions highlights.

The data has no immediate implications for the RBA, its policy or market pricing given that this CPI is in line with market expectations. As a result the Aussie dollar at 0.8780 is roughly 20 points off its lows. But, this data also highlights the fragility in evidence in the Australian economy at present.

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