Good news, we now seem to be facing moderating inflation in coming months.
Figures out yesterday showed that wholesale inflation continued its slow fall in the June quarter as the impact of the global slump, the fall in oil and commodity prices, and more importantly, the impact of the local slowdown reduced the price pressures in the Australian economy.
But the latest figures from the Australian Bureau of Statistics (and those for preceding quarters) show the price pressures are still working their way through the three stages of production: preliminary, intermediate and final, with the cost increases still more apparent in the final stage in the June quarter.
Underlying inflation is still relatively high and probably won’t ease until later in the year.
An important factor in the past quarter was the 12% rise in the value of the Australian dollar, which had added to the price pressures in the September and December quarters of 2008 and in the March quarter of this year.
The Reserve Bank has been discussing and highlighting the slow dissipation of these pressures in the minutes and post meeting statements for the past three or four board meetings.
We will get more when the minutes for the July board meeting are released later this morning.
And we will see the easing in tomorrow’s headline Consumer Price Index figures, but the core inflation figures will reveal that those pressures still haven’t been fully ejected from the system.
But they are easing, with significant falls in price pressures seen in the March quarter continuing into the June quarter, despite a rise in oil prices in the latest period.
The June quarters’ Producer Price Indexes and the 2009 financial year showed that the PPI continued the easing seen in the March quarter from the peak in the December quarter.
The PPI for the final stage of production fell 0.8% in the June quarter (a fall of 0.4% in the March quarter and up 1.3% in the December quarter) for an annual rise 2.1%.
The fall in the quarter was the largest since the ABS started the PPI series in 1998. It matches similar sharp falls in business inflation in other major economies.
That was better than the forecast from economists who had expected the June quarter PPI to fall 0.2% for an annual rise of 2.9%
The annual rate was lower than the 4% rise in the March quarter and up a sharp 6.4% in the December quarter.
In the June quarter, at the intermediate stage, the PPI fell 1.9% (down 3.2% in the March quarter and up in the December quarter).
The annual rate fell 0.8% after being up 3.9% in the March quarter and a massive 9.5% in the year to December (calendar 2008).
At the preliminary stage it fell 2.7% in the June quarter, to be down 1.9% in the year to June, against an annual rise of 4.3% in March and a rather large 11.9% in the year to December.
The latest PPI figures came after the import and export indexes for the June quarter and the financial year were released on Friday.
We reported on those yesterday: a quick reminder:
Export prices fell 21% in the June quarter, after falling only 5% in the previous quarter, thanks to those already reported sharp falls in iron ore and coal prices, plus the 12% rise in the value of the Australian dollar in the quarter.
Import prices also fell sharply in the quarter, losing a record 6.4%, mainly as a result of the stronger dollar. The ABS said the fall in this index was the biggest since import price records were first collected in the early 1980s.
Through the year to June quarter 2009, the Import Price Index rose 5.9%, while the Export Price Index fell by 0.2%.
Overall, consumer inflation will be down tomorrow, but core costs will still be above the Reserve Bank’s 2% to 3% target range, but falling back towards it.
