Australia’s central bank left the official cash rate on hold as expected today, but raised some new concerns about the outlook, including the strength of the Aussie dollar and persistently weak inflation pressures.
With the Australian retail sector currently preparing for the arrival of Amazon — which is expected to place further downward pressures on prices for certain items, initially likely in electronic goods — the RBA specifically mentioned for the first time that competition in the retail sector has been dragging on the inflation outlook.
“The recent inflation data were broadly as the Bank expected. Both CPI inflation and measures of underlying inflation are running at a little under 2 per cent,” the bank said. “Inflation is expected to pick up gradually as the economy strengthens. Higher prices for electricity and tobacco are expected to boost CPI inflation. A factor working in the other direction is increased competition from new entrants in the retail industry.”
In last week’s official consumer price index data, clothing and footwear prices were noted to have fallen by almost 2% over the year. Food prices fell 0.2% in the June quarter, leaving food and non-alcoholic beverage price growth at just 1.9% for the year. Furnishings and household equipment price growth rose in the during the quarter but over the year showed growth of 0.0%.