Australian Inflation Remains Benign

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It’s incredible how low inflation in Australia is with RBA rates at generational lows and the Aussie dollar down almost 25 cents from the peak a few years back.

This morning’s release of the TD-MI Monthly Inflation Guage is another indicator that either demand, or pricing power, in the economy is not strong enough for any inflation of note.

Prices rose just 0.2% in October, following an increase of 0.1% in September. This took the annual rate to 2.3% which is toward the bottom end of the RBA’s 2-3% target band.

The big movers for the month were:

  • automotive fuel (+3.1 per cent);
  • holiday travel and accommodation (+3.6 per cent);
  • non-alcoholic beverages (+2.0);
  • fruit and vegetables (-1.8 per cent);
  • newspapers, books and stationery (-2.0 per cent);
  • health (-1.0 per cent).

While this is a good number Annette Beacher, Head of Asia-Pacific Research at TD Securities, said that:

For October, we observed many more price increases than declines and annual inflation rates picked up a little between September and October, hinting that further inflation downside may be limited. We also note a pickup in tradable inflation, a sign of things to come with the sustained depreciation of the exchange rate from the peak of $US0.95 in early July.

Certainly a falling Aussie dollar should put some upward pressure on inflation going forward but for the moment inflation, which remains quiescent, suggests an economy which is transitioning slowly and where Australians remain circumspect when it comes to new discretionary spending.

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