The continuing fall in veggie prices again protected us against a sharper than actual jump inflation in the three months to September. Who would of seen that coming? The answer, no one.
In fact the September quarter Consumer Price Index saw a less than expected rise of 0.6% which will not worry the Reserve Bank on bit. And it will make it tough for the ‘rising inflation is a worry’ crowd to continue sprouting their nonsense about the need for rate rises.
In fact if anything the headline figure was a touch on the low side considering the boost from energy prices in the quarter. The annual rate eased to 1.8% in the year to September from 1.9% in 2016-17. That of course is well below the RBA’s target range of 2% to 3% over time.
It also makes you wonder about the bank’s continuing belief that we will see faster wage rises soon.
Some forecasters such as the National Australia Bank have two rate rises in for 2018 – August and November. There won’t be any if the CPI continues round this level for much longer. Sometime in 2019 might be a better target.
The underling weakness in the result was emphasised by a dip in the RBA’s preferred measures – the trimmed mean (0.4% from 0.5% in the June quarter) and the weighted media (0.3% from 0.4%). The annual rate was an average of 1.850%. So don’t be surprised to see some inflationistas yelling ‘rate cut looms’ as a result of this report.
The Australian Bureau of Statistics said the most significant price rises this quarter were electricity (+8.9%), tobacco (+4.1%), international holiday travel and accommodation (+4.1%) and new dwelling purchase by owner-occupiers (+0.8%). These rises are partially offset by falls in vegetables (-10.9%), automotive fuel (-2.3%) and telecommunication equipment and services (-1.5%).
Chief Economist for the ABS, Bruce Hockman, said in yesterday’s release that “Utilities prices rose strongly in the September quarter 2017. The most significant rises relate to electricity and gas prices, with increases in wholesale prices being passed on to consumers. Increases in wholesale prices have been observed across the National Electricity Market (NEM), with the most significant rises this quarter in electricity being observed in Adelaide; Sydney; Canberra and Perth.”
In a note yesterday afternoon AMP Chief Economist, Dr Shane Oliver was sanguine, pointing out “There is no imminent RBA interest rate hike here.”
"Headline and underlying inflation is running below the mid-point of the RBA’s inflation forecasts and this is likely to remain the case for a while yet. Our view remains that the RBA won’t raise interest rates until late next year as it will take a while for a gradual pick-up in economic growth to flow through to stronger wages growth and higher underlying inflation in the economy.
“With the RBA on hold for the next year or so and the Fed on track to hike in December with another three hikes next year the interest rate differential will continue to move against Australia which should result in further weakness in the Australian dollar,” Dr Oliver said.
