Don’t expect the Reserve Bank to do anything to interest rates at its first meeting for 2020 next Tuesday, or for most of the rest of the year.
The Consumer Price Index data (along with the December jobs report) show an economy drifting with little or no inflationary pressures, falling levels of full-time work, but still solid demand for part-timers, with worse to come from the long term impact of the bushfires and the coronavirus.
After three rate cuts in 2019, inflation has not yet moved to the bottom of the RBA’s preferred 2% to 3% range over time.
Some economists say that could happen in the March quarter when the CPI is boosted by the impact of the bushfires, especially on food prices, and by the fallout from China’s coronavirus.
But that will be temporary and not even a return of weakness for the Australian dollar (which topped 70 US cents at the end of December but current sits around 67.50 US cents) will shift inflation in a significant fashion. The weaker dollar has had little impact on inflation in the past two years.
The Consumer Price Index rose 0.7% in the December 2019 quarter, according to the latest Australian Bureau of Statistics (ABS) figures. This follows a rise of 0.5% in the September 2019 quarter.
That gave an annual rate of 1.8%, unchanged from 2018, but up from the 1.7% rise in the year to September.
Last week’s December jobs report showed the unemployment rate on both a trend and seasonally adjusted basis dipped to 5.1%, down on 5.2% in November and 5.3% earlier in the year.
The rise in the labour force though for 2019 was 2.1%, the slowest since 2016 and a sign the great jobs boom of the past three years is losing its momentum.
And if it had not been for the 8.4% jump in the cost of tobacco because of rises in excise each quarter the rise in the CPI would have been much smaller and the annual rate would be been under 1.5% and closer to 1%, as the RBA’s favoured measures, the trimmed mean and weighted median reveal.
They rose 0.4% in the quarter for an average combined rate for the year of 1.45%.
The most significant price rises in the December 2019 quarter were tobacco (+8.4%), domestic holidays, travel and accommodation (+7.3%), automotive fuel (+4.4%) and fruit (+6.8%).
The most significant price falls the December quarter were international holidays, travel and accommodation (-2.9% and women’s clothing (-2.5%). That’s price deflation.
ABS Chief Economist, Bruce Hockman said in yesterday’s statement: “Drought conditions are impacting prices for a range of food products. Food prices increased 1.3 percent this quarter with price rises for beef and veal (+2.9 percent), pork (+4.7 percent), milk (+1.7 percent) and cheese (+2.4 percent). Both the impact from the drought and lower seasonal supply contributed to price rises for fruit (+6.8 percent) this quarter.”
Another factor for the strong rise in meat prices has been the solid buying by China of Australian red meat to help offset the impact of African swine fever on its pig herds and the associated mass culling to try and control the spread of the fever. That has helped many farmers in 2019as prices for Australian beef, veal and lamb rose thanks to that added demand.
“Annual inflation remains subdued partly due to some price falls for housing-related expenses. Through the year to the December 2019 quarter, price falls were recorded for utilities (-1.0 percent) and new dwelling purchase by owner-occupiers (-0.1 percent), while rent price rises remained modest (+0.2 percent),” said Mr. Hockman.
