There was nothing extraordinary in the June quarter Consumer Price Index and nothing for financial markets or business economists to get excited about and dash off urgent notes to each other except one important proviso: core inflation just won’t go away.
But that won’t change the current interest rate outlook of no rate cuts (unless the economy slumps very sharply and very quickly) and no rate rises, despite suggestions by some commentators that a rise could be lurking in the first half of next year.
But that’s understood at the Reserve Bank which would not have been surprised with the fall in the headline rate, nor the persistence of core inflation, as shown by their measures.
The bank’s board minutes have told both were happening for the last three months, and did so again Tuesday. And market forecasters on the whole got the figures right before their release.
The CPI rose 0.5% in the June quarter, up from the 0.1% rise in the March quarter, while the annual rate to June of 1.5% was sharply down on the 2.5% annual rate in the 12 months ending March.
The annual rate for headline inflation was the lowest in a decade, since late 1999.
But core inflation, as measured by the Reserve Bank’s twin preferred measures, the Weighted Median and the Trimmed Mean, won’t go away quickly.
There was a small improvement, but that left the core rate well above the central bank’s target range (over time) of 2% to 3%.
The RBA said the Weighted Men rose 0.8% in the quarter to 4.2% (compared with the 1.2% rise in the March quarter to 4.4%) and the Trimmed Mean rose 0.8% in the June quarter to 3.6% (1% in March to 3.9%).
While lower oil and petrol prices and interest rates had a big impact on the annual rate, they had widely differing impacts on the June quarter: interest rates cut cost pressures, higher petrol prices were a big factor behind the higher ride, when compared to March.
Higher health costs were also a major factor in the June quarter.
Food prices were a big positive for costs in the June quarter, and were in fact a major moderating factor.
Major retailer, Woolworths reported easing inflation in its full year and 4th quarter sales figures for its Australian supermarkets, which are a good barometer of cost pressures.
"Australian Food and Liquor sales for the year were $32.8 billion, an increase of 9.6 %( 2) over last year with comparable sales for the year increasing by 7.4%, (inflation 4.1%).
"This compares well to last year comparable sales of 6.3%, (FY08 inflation 2.9%).
“During the fourth quarter, sales from the Australian Food and Liquor division increased by 9.5%. Comparable sales for the fourth quarter were 7.9%. Inflation for the fourth quarter declined to 4.0% (Q3: 4.4%).
The ABS said in its commentary in yesterday’s release:
“The most significant price rises this quarter were for automotive fuel (3.6%), hospital and medical services (3.6%), rents (1.4%), furniture (3.7%) and house purchase (0.8%).
"The most significant offsetting price falls were for deposit and loan facilities (-4.3%), vegetables (-6.9%), fruit (-7.6%), and overseas holiday travel and accommodation (-3.4%)."
"At the All Groups level, the CPI rose in all capital cities this quarter. Darwin registered the highest increase with a rise of 1.1%, while the remaining cities rose by between 0.3% and 0.8%.
"Over the twelve months to June quarter 2009, the All groups CPI rose in all capital cities with the increases ranging from 1.2% in Melbourne to 2.5% in Darwin.
“The higher result in Darwin is largely due to stronger than average rises in housing, food, alcohol and tobacco and household contents and services The ABS reported.
"Transportation, household contents and services and housing were the three main positive contributors in all cities except Hobart, where the contribution of the health group was higher than that for housing.
"Price rises in the transportation group were driven by increases in automotive fuel prices in every capital city. This group was the largest positive contributor in both Melbourne and Perth.
“Household contents and services group was also a significant contributor to the quarterly movement showing increases in all cities. It was the highest or second highest contributing group in all capital cities.
"Price increases for the household contents and services group ranged from 1.7% in Melbourne to 3.1% in Brisbane.
"The housing group rose in seven out of eight capital cities. It was the highest positive contributor in Sydney, recording a movement of 1.1%. Adelaide (-0.6%) was the only city to register a fall in housing.
“Both the health group and the clothing and footwear group showed increases in all capital cities.
"The food group was the largest negative contributor in all cities except Perth. In Perth it was the third highest negative contributor with the financial and insurance services group and the recreation group providing greater negative contributions.
“Food prices fell in all cities ranging from 0.3% in Darwin and Perth to 1.4% in Sydney.
"Every capital city experienced falls in the financial and insurance services group, ranging from 1.2% in Brisbane, Adelaide, Hobart and Darwin to 1.8% in Sydney.
"The larger overall quarterly increase for Darwin was mainly due to the increase in the recreation group, where it was the most significant positive mover, rising 3.2%.
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