Austalia is not immune to emerging global forces of deflation with the latest edition of the TD Securities monthly inflation report showing prices were flat in the month of December.
This outcome for inflation is most unusual, according to Annette Beacher, TD Securities Head of Asia Pacific Research. She wrote that the usual seasonal surge in prices into Christmas “were still apparent but were offset by fuel and other price falls in the month.”
The big news is that “in the twelve months to December, the Inflation Gauge increased by 1.5 per cent, following a 2.2 per cent rise for the twelve months to November.”
That’s a huge dip and has lead Beacher and her team to downgrade expectations of the December quarter CPI. They forecast “headline inflation rising by only 0.3 percent in the quarter, to be 1.8 per cent higher than a year ago, while we forecast underlying inflation to rise by 0.45 per cent in the quarter, for an annual rate of 2.1 percent.”
It also means that Beacher has dropped her previous call that the RBA would need to raise rates in 2015 and is no longer expecting a rate hike this year.
She is however, “unconvinced that cash rate cuts are the solution, rather we call on the government to announce a well-targeted infrastructure package, taking advantage of the current favourable funding conditions, to boost growth and jobs.”
Perhaps infrastructure AND a rate cut?
That might finally get some animal spirits moving in the Australian economy.