The Amazon effect and falling mobile data costs are making life tricky for the RBA

Photo: Oli Scarff/ AFP/ Getty Images.

Australia’s Q2 inflation data shows pricing power remains weak for the retail sector. Headline consumer prices rose just 0.2% for the quarter, giving an annualised rate of 1.9%.

The biggest drags on the result were costs for clothing and footwear and communications.

Both sectors are showing outright deflation, with clothing and footwear costs down 1.9% over the year; and communications costs, which fell a massive 3.8%.

The falls were enough to offset rises for other things, including healthcare (+3.8% for the year), and soaring costs for alcohol and tobacco (5.9%).

Here’s the headline data from the ABS:

The industries showing price falls are both sectors where there is ferocious competition, with clothing and footwear costs particularly affected by the relentless downward price pressures visited on the retail industry through digital disruption.

Australian retailers are reshaping their businesses and cutting costs to prepare for the entry of Amazon’s offering, expected later this year. Communications costs — much of it related to mobile phone plans — are also tumbling as telcos compete to offer bigger and bigger data plans at lower costs.

These low costs help households make ends meet with their budgets in a time of low wages growth, but they continue to make the outlook tricky for the Reserve Bank of Australia, which has been struggling to get core inflation rising back to its target band of between 2% and 3%.

Core inflation — which strips out short-term cyclical noise — came in at 1.8%.

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